401k to IRA Rollover: Complete Guide for H1B and Green Card Holders

Changing jobs while on an H-1B visa or after receiving your green card raises an important question: what happens to your 401(k)? The money you have contributed to your employer’s retirement plan does not disappear when you leave, but you face several critical decisions about where those funds should go. Rolling over your 401(k) to an Individual Retirement Account (IRA) is often the smartest choice, giving you more investment options, potentially lower fees, and greater control over your retirement savings.

For H-1B visa holders and green card holders, the rollover decision carries additional complexity. Your immigration status, potential plans to return to your home country, and tax treaty considerations all affect how you should handle this transition. A misstep could trigger unnecessary taxes, early withdrawal penalties, or even create complications if you eventually leave the United States. Understanding the rules before you act can save you thousands of dollars and significant headaches.

This comprehensive guide walks you through everything you need to know about rolling over a 401(k) to an IRA as an H-1B or green card holder. You will learn the differences between direct and indirect rollovers, understand the 60-day rule, compare Traditional and Roth IRA options, and discover strategies tailored to your specific immigration situation. Whether you are changing employers, starting your own business, or planning for an eventual return home, this guide provides the clarity you need to make informed decisions about your retirement savings.

Understanding 401(k) to IRA Rollovers: The Basics

A 401(k) to IRA rollover is the process of moving retirement funds from an employer-sponsored 401(k) plan to an Individual Retirement Account. This transfer allows you to maintain the tax-advantaged status of your retirement savings while gaining more control over how those funds are invested. For H-1B visa holders and green card holders, understanding the IRA and 401(k) taxation rules is essential before initiating any rollover.

When you leave an employer, whether voluntarily or involuntarily, your 401(k) account does not automatically follow you to your new job. You typically have four options: leave the money in your former employer’s plan (if allowed), roll it over to your new employer’s 401(k), roll it over to an IRA, or cash out (which triggers taxes and penalties). For most people, rolling over to an IRA provides the best combination of flexibility and investment choice.

The key advantage of an IRA rollover is expanded investment options. Employer 401(k) plans typically offer a limited menu of mutual funds selected by the plan administrator. An IRA, by contrast, can hold virtually any stock, bond, mutual fund, ETF, or other investment. This flexibility becomes particularly valuable if you have specific investment preferences or want to reduce fees by choosing low-cost index funds. Additionally, those who eventually plan on managing a US 401(k) abroad often find that an IRA provides easier access and management from overseas.

Rollover Limits and Eligibility

One important distinction to understand: rollovers are not subject to annual contribution limits. While IRA contributions are capped at $7,500 for 2026 (plus an additional $1,100 catch-up contribution if you are 50 or older), you can roll over any amount from a 401(k) to an IRA regardless of these limits. The entire balance of your 401(k), whether $10,000 or $1 million, can be transferred in a single rollover without affecting your ability to make regular IRA contributions for the year.

Eligibility for a rollover typically requires a “triggering event” such as leaving your job, reaching age 59 1/2, becoming disabled, or the plan being terminated. Some 401(k) plans also allow in-service rollovers once you reach a certain age, but this varies by plan. Check your plan documents or contact your HR department to understand when you become eligible to move your funds.

Direct Rollover vs. Indirect Rollover: Key Differences

The IRS recognizes two methods for rolling over retirement funds: direct rollovers and indirect rollovers. The method you choose has significant implications for taxes, timing, and the complexity of the transaction. For H-1B and green card holders, understanding these differences is crucial because mistakes can trigger unexpected tax bills and penalties.

Direct Rollover (Trustee-to-Trustee Transfer)

A direct rollover, also called a trustee-to-trustee transfer, is the preferred method for moving 401(k) funds to an IRA. With this approach, your former employer’s plan administrator sends the money directly to your new IRA custodian. You never personally receive or control the funds during the transfer. This method offers several important advantages:

• No withholding: Because you never take possession of the money, your employer is not required to withhold 20% for taxes
• No deadline pressure: The 60-day rollover window does not apply since this is not considered a distribution to you
• No limits on frequency: You can complete unlimited direct rollovers in a year
• Simpler reporting: The transaction is typically reported as a non-taxable transfer

Indirect Rollover (60-Day Rollover)

An indirect rollover occurs when you personally receive a distribution from your 401(k) and then deposit those funds into an IRA. This method is more complex and carries significant risks. When you take an indirect rollover, your employer must withhold 20% of the distribution for federal income taxes. If you want to roll over the full amount, you must replace that 20% from your own funds within the 60-day window.

Consider this example: You request a distribution of $50,000 from your 401(k). Your employer withholds $10,000 (20%) and sends you a check for $40,000. To complete a full rollover, you must deposit $50,000 into your IRA within 60 days, which means finding $10,000 from another source. If you only deposit the $40,000 you received, the $10,000 withheld is treated as a taxable distribution and may be subject to the 10% early withdrawal penalty if you are under 59 1/2.

H-1B Visa Holders: Special Rollover Considerations

H-1B visa holders face unique circumstances when managing retirement accounts. Your temporary immigration status, potential for job changes, and the possibility of returning to your home country all influence how you should approach a 401(k) rollover. Understanding the H-1B retirement strategy including 401(k), Roth IRA, and exit tax considerations helps you make decisions that align with both your short-term needs and long-term plans.

One of the primary concerns for H-1B holders is maintaining access to retirement funds while navigating visa status changes. If you change employers, your new company may sponsor your H-1B transfer, but the process takes time and creates uncertainty. During this transition, having your retirement funds in an IRA rather than a former employer’s 401(k) provides more flexibility and control. You are not dependent on a previous employer’s plan administrator to process transactions or answer questions.

Planning for Potential Return Home

Many H-1B holders eventually return to their home countries, either by choice or due to visa issues. If this possibility exists in your future, planning your rollover strategically becomes essential. Rolling your 401(k) to an IRA while you are still in the United States allows you to open the account with a US address. Some IRA custodians, including Fidelity and Charles Schwab, allow you to maintain the account and change your address to a foreign address after you leave.

However, be aware that not all custodians work with non-US residents. Vanguard, for example, has restrictions on accounts held by individuals with foreign addresses. Before initiating a rollover, research which custodians will continue to service your account if you relocate abroad. Opening accounts with multiple custodians while you still have a US address provides backup options.

The tax implications of early retirement withdrawals for H-1B visa holders also deserve consideration. If you leave the US before age 59 1/2 and need to access your retirement funds, you will face both income taxes and potentially the 10% early withdrawal penalty. Tax treaties between the US and your home country may reduce the withholding rate on distributions, but the specifics vary significantly by country.

Green Card Holders: Rollover Options and Planning

Green card holders enjoy more stability than H-1B visa holders when it comes to retirement planning, but important considerations still apply. As a permanent resident, you have the same retirement account options as US citizens, including the ability to contribute to 401(k) plans and IRAs without restrictions. However, your unique circumstances, including potential ties to your home country and the possibility of expatriation, should inform your rollover decisions.

Understanding the H-1B to green card tax implications and filing requirements helps you navigate the transition period when your status changes. Once you receive your green card, you are considered a US tax resident regardless of where you live, which affects how your retirement accounts are taxed globally. This worldwide taxation continues until you formally abandon your green card or it is revoked.

Long-Term Residency Considerations

If you plan to remain in the United States permanently, your rollover strategy can focus primarily on optimizing investments and minimizing fees. An IRA rollover typically provides access to a wider range of investment options at lower costs than most 401(k) plans. You can select from thousands of mutual funds, ETFs, individual stocks, and bonds rather than being limited to a handful of options chosen by your employer’s plan administrator.

Green card holders who may eventually return to their home country should consider the same custodian selection issues as H-1B holders. The rules around eligibility for IRA and 401(k) contributions require US residency and earned income, so understanding these requirements helps you plan for various scenarios.

Additionally, green card holders should be aware of exit tax rules that apply if you expatriate after holding your green card for eight or more years in the past fifteen years, or if you have significant assets or income. These rules can affect how you structure your retirement accounts and when you might want to take distributions. Consulting with a tax professional who understands both US and international tax law is highly advisable before making major decisions.

Traditional IRA vs. Roth IRA: Which Should You Choose?

When rolling over a traditional 401(k), you face an important decision: should you roll into a Traditional IRA or convert to a Roth IRA? Each option has distinct tax implications that can significantly impact your retirement wealth. The right choice depends on your current tax situation, expected future tax rates, and long-term financial goals.

Traditional IRA Rollover

Rolling a traditional 401(k) to a Traditional IRA is a tax-neutral event. Your contributions were made with pre-tax dollars, and they remain pre-tax in the Traditional IRA. You pay no immediate taxes on the rollover, and your money continues to grow tax-deferred until you take distributions in retirement. At that point, distributions are taxed as ordinary income.

This option makes sense if you expect to be in a lower tax bracket in retirement than you are now. It also provides more flexibility if you are uncertain about your future plans, as you can always convert to a Roth IRA later. Traditional IRAs do have required minimum distributions (RMDs) starting at age 73, which forces you to begin withdrawing (and paying taxes on) your savings at that point.

Roth IRA Conversion

Converting your traditional 401(k) to a Roth IRA triggers immediate taxation. You must pay income tax on the entire converted amount in the year of conversion. However, once the money is in the Roth IRA, it grows tax-free and qualified withdrawals in retirement are completely tax-free. Roth IRAs also have no required minimum distributions during your lifetime, allowing your money to grow indefinitely.

A Roth conversion may be advantageous if you expect to be in a higher tax bracket in retirement, want tax-free income in retirement, or want to leave tax-free assets to heirs. For H-1B and green card holders who may spend time outside the US, Roth IRAs can also simplify tax planning since qualified distributions are not taxable income.

The 60-Day Rollover Rule: Deadlines and Penalties

If you choose an indirect rollover (receiving the funds personally before depositing them into an IRA), you must complete the deposit within 60 days of receiving the distribution. This deadline is strict, and missing it converts what would have been a tax-free rollover into a taxable distribution with potential penalties.

Consequences of Missing the Deadline

If you fail to complete an indirect rollover within 60 days, the IRS treats the distribution as taxable income. You must report the full distribution amount (before the 20% withholding) as income on your tax return. If you are under age 59 1/2, you may also owe a 10% early withdrawal penalty on top of the income taxes. These combined consequences can consume a substantial portion of your retirement savings.

For example, if you receive a $50,000 distribution at age 45 and miss the 60-day deadline, you could owe approximately $12,000 in federal income taxes (assuming a 24% bracket) plus a $5,000 early withdrawal penalty, totaling $17,000. State income taxes may add to this burden. This is why most financial advisors strongly recommend using direct rollovers whenever possible.

IRS Waiver of the 60-Day Rule

The IRS may waive the 60-day requirement in certain circumstances beyond your control. Automatic waivers apply when the failure to meet the deadline was due solely to an error by the financial institution. In other cases, you can request a private letter ruling from the IRS, though this process is time-consuming and expensive. Valid reasons for a waiver request include:

• Errors by financial institutions: If the bank or custodian made a mistake that prevented timely deposit
• Inability to complete the rollover: Due to death, disability, hospitalization, or incarceration
• Postal errors: If the check was lost or delayed in the mail
• Natural disasters: Events like hurricanes, fires, or other declared disasters

Tax Implications of 401(k) Rollovers

Understanding the tax implications for H-1B visa holders during major life transitions helps you avoid costly surprises. A properly executed direct rollover from a traditional 401(k) to a Traditional IRA is not a taxable event. The funds maintain their tax-deferred status, and you report the rollover on your tax return as a non-taxable distribution.

However, several situations can trigger taxes during a rollover. Converting to a Roth IRA, taking an indirect rollover and missing the deadline, or rolling over employer stock with net unrealized appreciation all have unique tax consequences. The tax implications of changing from H-1B to green card status also intersect with retirement account decisions in important ways.

Tax Reporting Requirements

Even tax-free direct rollovers must be reported on your tax return. Your former employer’s plan administrator will send you a Form 1099-R showing the distribution. Box 7 of this form indicates the distribution code, which tells the IRS whether the distribution was a rollover, early withdrawal, or other type of distribution. For a direct rollover, Box 7 typically shows code “G” (direct rollover).

You report the rollover on Form 1040 by entering the total distribution amount on Line 5a and entering zero (or the taxable amount if doing a Roth conversion) on Line 5b. Write “Rollover” next to Line 5b to indicate the distribution was rolled over. Keeping documentation of the rollover, including confirmation from your new IRA custodian, is important in case of an IRS inquiry.

Step-by-Step 401(k) Rollover Process

Completing a 401(k) to IRA rollover involves several steps, but the process is straightforward when you follow it systematically. Taking time to gather information and make informed decisions prevents costly errors and ensures your retirement savings remain protected throughout the transition.

Common Rollover Mistakes to Avoid

Even experienced investors make mistakes during the rollover process. Understanding the most common errors helps you avoid them. Just as there are mistakes to avoid when transitioning visa status, there are rollover pitfalls that can cost you thousands of dollars in unnecessary taxes and penalties.

Mistake 1: Taking an Indirect Rollover Without Understanding the Consequences

Many people request a check made payable to themselves without realizing the 20% mandatory withholding will apply. They then struggle to come up with additional funds to complete the full rollover. Always request a direct rollover unless you have a specific reason to need short-term access to the funds.

Mistake 2: Missing the 60-Day Deadline

Life gets busy, and it is easy to let 60 days slip by. Set multiple reminders and complete your rollover as quickly as possible. Do not wait until the last minute, as unexpected delays can cause you to miss the deadline.

Mistake 3: Rolling Over to the Wrong Account Type

Rolling pre-tax 401(k) funds into a Roth IRA without understanding the tax consequences can result in a surprise tax bill. Make sure you understand whether your 401(k) contributions were pre-tax (traditional) or after-tax (Roth) and roll them to the corresponding IRA type unless you intentionally want to convert.

Mistake 4: Forgetting About Employer Stock

If your 401(k) contains employer stock with net unrealized appreciation (NUA), rolling it into an IRA may not be the best strategy. NUA allows you to pay long-term capital gains rates on the appreciation rather than ordinary income rates. Consult a tax professional before rolling over appreciated employer stock.

Understanding the common tax mistakes that immigrants make can help you approach your rollover more carefully. Taking time to plan prevents costly errors.

Example Scenarios

Understanding how rollovers work in practice helps illustrate the real-world impact of different decisions. The following scenarios demonstrate common situations faced by H-1B and green card holders, showing how the rules apply in specific circumstances.

Frequently Asked Questions

The following questions address common concerns about 401(k) rollovers for H-1B and green card holders. For more comprehensive guidance on tax matters, see this resource on filing taxes as an H-1B holder.

Bottom Line

Rolling over a 401(k) to an IRA is one of the most important financial decisions H-1B and green card holders make during their careers in America. Done correctly, this transfer preserves your retirement savings, expands your investment options, and maintains the tax advantages you have worked to build. Done incorrectly, it can trigger substantial taxes, penalties, and lost opportunity for tax-deferred growth.

The key takeaways from this guide are straightforward. First, always choose a direct rollover when possible to avoid the 20% mandatory withholding and 60-day deadline pressure. Second, select your IRA custodian carefully, especially if you may leave the United States in the future. Third, understand the difference between Traditional and Roth IRAs and choose based on your tax situation. Fourth, keep careful records of all rollover transactions for tax reporting purposes.

Your immigration status adds complexity but does not change the fundamental principles of retirement planning. Whether you ultimately remain in the United States, return to your home country, or move somewhere else entirely, maintaining control over your retirement savings through a well-executed IRA rollover gives you flexibility for whatever the future holds.

Disclaimer

This article provides general information about 401(k) to IRA rollovers and is intended for educational purposes only. It does not constitute legal, tax, or financial advice. Retirement account rules are complex and subject to change, and the specific implications for your situation depend on factors including your immigration status, tax residency, account types, and personal circumstances.

You should consult with qualified professionals, including a tax advisor, financial planner, and potentially an immigration attorney, before making decisions about your retirement accounts. The examples and scenarios presented are hypothetical illustrations and may not reflect your actual situation. VisaVerge and its contributors assume no liability for actions taken based on the contents of this article.