401(k) Rollover Tax Calculator 2026
Compare the tax impact of moving a 401(k) to a Traditional IRA, Roth IRA, or new employer 401(k). See how direct vs indirect rollovers, mandatory 20% withholding, and Roth conversion differ — before you trigger a costly mistake.
| Federal Tax Owed | — |
| State Tax Owed | — |
| 10% Early Withdrawal Penalty | — |
| Mandatory 20% Withholding (indirect) | — |
| Net Amount Reaching Destination | — |
How 401(k) Rollovers Are Taxed in 2026
A 401(k) rollover is the process of moving funds from a former employer's 401(k) to another retirement account. The tax treatment depends on three factors: where the money goes, how it gets there (direct vs indirect), and whether you convert pre-tax dollars into Roth (after-tax) dollars. Get any of these wrong and you can owe tens of thousands in unnecessary tax (source: irs.gov).
The cleanest option is a direct rollover (trustee-to-trustee transfer) to a Traditional IRA or new 401(k). No tax is owed because the money never touches your hands and stays in pre-tax form. This is what most people should do unless they have a specific reason to convert.
Direct vs Indirect Rollover — The 20% Withholding Trap
An indirect rollover means the 401(k) provider sends you a check. The IRS requires the provider to withhold 20% for federal taxes. You then have 60 days to deposit the full original amount (including the 20% withheld) into a new retirement account, or it counts as a distribution. To avoid tax, you must come up with the missing 20% from another source and recover the withholding when you file your return.
Most people miss this and accidentally trigger a partial taxable distribution. The 20% withholding is also pro-rated against your state withholding requirements. Always do a direct rollover unless you have a specific reason to use the 60-day window — and if you do, plan the cash-flow.
Roth Conversion — Tax Now for Tax-Free Later
Rolling a Traditional 401(k) into a Roth IRA is a "Roth conversion" — the entire pre-tax balance is treated as ordinary income in the year of conversion. On a $120,000 balance with a 24% marginal rate, that is $28,800 in federal tax alone. The benefit: all future growth and withdrawals are tax-free. Roth conversions can make sense in low-income years (early retirement, sabbatical, gap year) or when you expect higher tax rates later.
The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) extended the Tax Cuts and Jobs Act provisions, keeping current tax brackets in place rather than reverting in 2026. This changes the calculus: the rush to convert before "TCJA sunset" is no longer urgent. See our OBBB 2026 vs 2025 comparison for the new framework.
When NOT to Roll Over
Sometimes leaving money in a 401(k) is best: (1) if it has institutional fund classes with lower fees than retail, (2) if you want creditor protection (401(k)s are ERISA-protected, IRAs less so), (3) if you might need the "Rule of 55" for early withdrawal without penalty, (4) if you want to use the Net Unrealized Appreciation (NUA) treatment on company stock. Compare with our Traditional vs Roth IRA calculator for the long-term view.
Last updated April 2026. Sources: irs.gov rollover rules, IRS Pub 590-A.