On the other hand, 401(k)s offer a higher annual contribution limit of $19,500 in 2021 and $20,5 ($26,000 in 2021 and $27,000 in 2022 for those age 50 or older), compared with the IRA contribution limit of $6,000 in 20 ($7,000 if age 50 or older). With an IRA, your investment choices are almost unlimited, because most brokers offer a wide array of investment options. In a transfer between IRAs, you don’t have use or control of the money. Transferring money between IRAs is sometimes called a direct transfer or a trustee-to-trustee transfer. We recommend that you move IRA money using the direct transfer method to avoid problems. But with a 401(k), your investment choices are dictated by your employer. The second way is to transfer the funds directly from one IRA to another IRA.
Both types of accounts offer pre-tax savings: You can put money in before you pay taxes on it and you can delay your income tax payment until you take the money out in retirement. While 401(k) and rollover IRA accounts have some similarities, they’re also quite different. (If you were to simply withdraw the money from your 401(k), rather than roll it over, you'd owe income tax and probably an early withdrawal penalty.) A rollover IRA lets you move money out of a 401(k) without sacrificing the benefit of delaying your tax bill until retirement. Generally, you set up a rollover IRA so that you can move money from a 401(k) without paying income tax when you move the money. Our partners cannot pay us to guarantee favorable reviews of their products or services. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. So how do we make money? Our partners compensate us. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward - and free. We believe everyone should be able to make financial decisions with confidence. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. They are not intended to provide investment advice. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. is an independent publisher and comparison service, not an investment advisor.