Rolling over your 401(k) into an individual retirement account (IRA) can give expats greater control over their investments and reduce administrative restrictions tied to employer plans.
IRAs allow you to continue contributing – even while living abroad – provided you meet US income requirements. While both traditional and Roth IRAs are options, Roth IRAs offer specific tax advantages: qualified withdrawals are tax-free, and contributions (not earnings) can be accessed penalty-free at any time.
In this guide, we compare Rollover IRA vs Roth IRA in detail, focusing on tax treatment, contribution rules, and rollover strategies. We also outline how expats and non-US residents can structure their retirement savings effectively.
What You Will Learn
- What it means to roll over a 401(k) into an IRAThe key difference between a Roth IRA and a Rollover IRA
- What’s the difference between a rollover IRA and a traditional IRA?
- What are the contribution tax implications of a rollover IRA?
- The best 401k rollover options for managing your 401(k) abroad?
What Does It Mean To Roll Over to an IRA?
Rolling over to an IRA means transferring funds from a former employer-sponsored retirement account – such as a 401(k) – to an Individual Retirement Account (IRA). This process allows you to consolidate retirement savings from previous employers into a single, more flexible plan.
There are two types of IRAs to consider:
- Traditional IRA: Funded with pre-tax contributions
- Roth IRA: Funded with after-tax contributions
You can roll over a traditional 401(k) into either a Traditional IRA or a Roth IRA, though the tax treatment will differ. A Roth 401(k), by contrast, can only be rolled over into a Roth IRA.
- Tax-neutral rollovers: occur when funds are moved between accounts with the same tax structure (e.g. Traditional 401(k) to Traditional IRA).
- Taxable conversions: occur when rolling over to a plan with different tax treatment such as from a Traditional 401(k) to a Roth IRA. In this case, the amount converted must be declared as income and reported on your U.S. tax return for the year of the rollover.
For expats, this remains true even if you live abroad, and reporting obligations may trigger additional filing requirements such as FBAR or FATCA reporting if accounts exceed thresholds.
Key Benefits of a Rollover IRA:
- Simplifies retirement fund management and is ideal for consolidating multiple 401(k)s.
- Broadens investment options across global equities, funds, and fixed income.
- May reduce fees depending on the cost structure of your former employer’s plan.
To ensure your rollover is tax-efficient and fully compliant, it’s wise to consult with a cross-border financial adviser. At Titan Wealth International, we guide US expats and non-residents through complex rollover processes minimising their risk and identifying optimal tax strategies..
What Is the Difference Between a Traditional IRA and a Roth IRA?
The key differences between a Traditional IRA and a Roth IRA relate to how contributions are taxed, who can contribute, and how withdrawals are treated:
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Contributions | Made with pre-tax income. | Made with after-tax income. |
| Eligibility | Anyone with earned income taxable in the US. | Only available to individuals with US-taxable income under IRS income limits (e.g. $146,000 for single filers and $230,000 for joint filers in 2025). |
| Taxes | Taxable upon withdrawal. | Tax-free growth and tax-free withdrawals (if qualified). |
| Withdrawals | Taxed as ordinary income; penalty-free after age 59 1⁄2; RMDs begin at age 73. | Contributions can be withdrawn at any time tax- and penalty-free. Earnings withdrawals are tax- and penalty-free only if the account has been open for at least five years and the account holder is over 59 1⁄2 or meets a qualified exception (e.g. disability, first-time home purchase). |
Traditional IRAs are typically more suitable for US citizens and expats who expect to be in the same or a lower tax bracket during retirement. Roth IRAs are often preferred by those who anticipate being in a higher tax bracket in the future.
Note: Inherited Roth IRAs are subject to RMDs under SECURE 2.0, but original Roth account holders are not.
What Is the Difference Between a Traditional IRA and a Rollover IRA?
A Rollover IRA is a type of Traditional IRA created specifically to receive funds from a qualified employer-sponsored plan like a 401(k). While both are funded with pre-tax dollars, the key difference is the origin of the funds.
| Traditional IRA | Rollover IRA |
|---|---|
| Funded with individual contributions up to annual limits ($7,000 or $8,000 in 2025). | Funded via transfers from employer-sponsored plans (e.g. 401(k), 403(b)) – not subject to contribution limits. |
| Contributions reduce your taxable income. | Rollover amounts are not counted as contributions and do not affect your annual IRA contribution limit. |
| Designed for long-term retirement savings. | Designed to consolidate old workplace pensions while retaining tax benefits. |
What Is the Difference Between a Rollover IRA and a Roth IRA?
The differences when comparing a Roth IRA vs a rollover IRA centre on tax treatment, source of funds, and contribution eligibility:
| Feature | Rollover IRA | Roth IRA |
|---|---|---|
| Source of Funds | Rolled over from employer-sponsored plans like 401(k), 403(b), or 457(b). | Funded via after-tax personal contributions. |
| Tax Treatment | Depends on the rollover type (pre-tax or post-tax); withdrawals taxed accordingly. | Tax-free withdrawals of qualified distributions. |
| Income Limits | No income limits. | Contribution limits phased out above IRS-defined income thresholds. |
| Required Distributions | RMDs apply if funds originated from pre-tax accounts (e.g. Traditional 401(k). | No RMDs for original account holders. |
| Early Withdrawal Penalty | Subject to standard IRA rules – 10% penalty if withdrawn before age 59½ unless exempt. | Contributions can be withdrawn at any time without tax or penalty; earnings require conditions. |
| Rollover Flexibility | Cannot be rolled into a new employer’s plan once mixed with personal contributions. | Cannot be rolled into employer-sponsored plans. |
Note: Inherited Roth IRAs are subject to RMDs under SECURE 2.0, but original Roth account holders are not.
Can You Contribute To Both a Rollover IRA and a Roth IRA?
Yes, if you’re eligible based on income and tax residency status, you can contribute to both a Rollover IRA and a Roth IRA. However:
- Contributions are subject to the combined annual IRA contribution limit ($7,000 or $8,000 for those aged 50+ in 2025).
- Once you make personal contributions to a Rollover IRA, it is treated like a regular Traditional IRA. This may limit your ability to roll the account into a future employer plan.
Note for expats: You must have US-earned income to contribute to either type of IRA. Most nonresident aliens are ineligible unless they elect to be treated as US residents for tax purposes or earn US-source wages.
How Much Can You Contribute to a Rollover IRA and a Roth IRA?
You can hold and contribute to multiple IRAs. However, the combined annual contribution limit across all your IRAs is $7,000, or $8,000 if you’re age 50 or older.
This cap applies only to personal contributions. Rollover funds from an employer-sponsored plan do not count toward this limit.
Roth IRA contributions are also subject to income thresholds. For 2025, you can make a full Roth IRA contribution if your modified adjusted gross income (MAGI) is below:
- $150,000 (single filers)
- $236,000 (married filing jointly)
Partial contributions are allowed as your income increases within the phase-out range. The table below shows how much you can contribute based on your filing status and MAGI:
| MAGI (Single Filers) | MAGI (Joint Filers) | Maximum Contributions (Under age 50) | Maximum Contributions (Over age 50) |
|---|---|---|---|
| Under $150,000 | Under $236,000 | $7,000 | $8,000 |
| $151,500 | $237,000 | $6,300 | $7,200 |
| $153,000 | $238,000 | $5,600 | $6,400 |
| $154,500 | $239,000 | $4,900 | $5,600 |
| $156,000 | $240,000 | $4,200 | $4,800 |
| $157,500 | $241,000 | $3,500 | $4,000 |
| $159,000 | $242,000 | $2,800 | $3,200 |
| $160,500 | $243,000 | $2,100 | $2,400 |
| $162,000 | $244,000 | $1,400 | $1,600 |
| $163,500 | $245,000 | $700 | $800 |
| Over $165,000 | Over $246,000 | $0 | $0 |
What Are the Tax Consequences of an IRA Rollover?
There are two ways to roll over retirement funds to an IRA:
- Direct Rollover: Your funds are transferred directly from one retirement account to another. If both accounts have the same tax treatment, such as a traditional 401(k) to a traditional IRA, the rollover is tax-free.
- However, if you roll over funds from a tax-deferred account like a traditional 401(k) to a Roth IRA, you’ll owe income tax on the transferred amount in the year of conversion.
- Indirect Rollover: With an indirect rollover, you receive the distribution and have 60 days to deposit the funds into a rollover IRA. If you miss the deadline, the full amount becomes taxable income and if you’re under age 59 1⁄2 may be subject to an early withdrawal penalty of 10%.
- Indirect rollovers also trigger a mandatory 20% federal withholding, even if you plan to complete the rollover. To avoid taxation on the withheld amount, you must deposit the full distribution – including the withheld 20% – into the new IRA.
Example: If your 401(k) distribution is $30,000, your employer will withhold $6,000 and issue a check for $24,000. To complete the rollover tax-free, you must deposit the full $30,000 within 60 days meaning you’ll need to contribute $6,000 from personal funds. Failing to do so results in taxation and possible penalties on the withheld portion.
Note: You’re only allowed one indirect rollover across all IRA accounts within a 12-month period, regardless of the number of IRAs you hold.
Are Rollover Contributions to Roth IRA Taxable?
Yes, if the source account is tax-deferred, such as a traditional 401(k), the rollover amount is treated as taxable income in the year of transfer and taxed at your marginal rate (10%–37%).
However, Roth-to-Roth rollovers (like a Roth 401(k) to Roth IRA) are generally not taxable, since contributions have already been taxed.
What Should I Invest My Rollover IRA In?
Your rollover IRA investments should align with your long-term objectives, risk tolerance, and preferred level of involvement.
Low-risk investments typically offer more stable but modest returns, making them suitable for capital preservation, while higher-risk assets may deliver stronger growth but are generally more volatile – an important consideration for those approaching retirement.
It’s also important to consider whether you prefer an active investment approach, which may involve working with a professional portfolio manager, or a passive strategy, which usually involves lower fees and requires less frequent portfolio adjustments.
Once you determine your risk tolerance and investment strategy, some of the best investments for a rollover IRA are:
- Mutual Funds and Index Funds: Mutual funds pool investors’ money into a diversified portfolio of stocks, bonds, or other securities. Index funds are a type of mutual fund or ETF that aim to replicate the performance of a market index, such as the S&P 500. They are known for low fees and passive management.
- Exchange-traded funds: ETFs are similar to mutual funds in structure but trade on stock exchanges like individual stocks. Their prices fluctuate throughout the trading day, allowing for more flexible entry and exit points. ETFs often have lower expense ratios and are a popular choice for passive investors.
- Stocks: Owning individual shares in a company provides the potential for growth and dividend income. Stocks are generally more volatile than funds and may suit those with higher risk tolerance and a long investment horizon.
- Bonds: Bonds are fixed-income investments where you lend money to a government or corporation in exchange for periodic interest payments and the return of principal at maturity. Bonds are often used to add stability to a portfolio, particularly for those nearing
What Is the Best 401(k) Rollover?
The best account to rollover a 401(k) depends on your investment goals, risk tolerance, preferred management style, and the associated fees.
Whether you’re an active or passive investor, choosing a low-cost IRA provider that aligns with your long-term objectives is essential. Based on the aforementioned factors, these are the best IRAs for a 401(k) rollover:
- Fidelity IRA.
- SoFi IRA.
- Charles Schwab Rollover IRA.
Fidelity IRA
Fidelity offers self-directed IRAs with no account opening or maintenance fees, making it a strong option for cost-conscious investors.
You can select your own investments or opt for robo-advisory services, which incur a 0.35% annual fee for accounts above $25,000. Advisory fees range from 0.50% to 1.50% for balances over $500,000 and fall between 0.20% and 1.04% for accounts exceeding $2 million.
Investment options include:
- Stocks.
- Bonds.
- Mutual funds.
- ETFs.
- Certificates of deposit (CDs).
Fidelity is suitable for both passive investors who want automation and active investors seeking full control.
Betterment IRA
Betterment is a financial technology company that accepts 401(k) rollovers without charging any fees. It has no minimum deposit requirements, but it includes:
- A monthly management fee of $4 for accounts under $20,000
- An annual 0.25% fee for accounts over $20,000
Its robo-advisor helps you build a balanced retirement portfolio. The platform offers a wide selection of investment options, such as ETFs that cover 13 different types of assets, including stocks and bonds. It’s suitable for all types of investors, but especially those who don’t want to actively manage their investment portfolio.
Charles Schwab Rollover IRA
Charles Schwab provides robust investment tools and a wide range of asset classes including stocks, bonds, ETFs, mutual funds, and cash management products. Schwab caters to both active and passive investors with features such as:
- Low-cost index funds.
- Commission-free stock and ETF trades.
- Access to Schwab Intelligent Portfolios for automated investing.
There are no maintenance fees, and rollovers are free. However, minimum investment thresholds apply: $5,000 for a basic rollover IRA, and $25,000 for Schwab’s Portfolios Premium service.
Expert Help for Your Rollover Decision
Selecting the right rollover IRA platform requires careful consideration of costs, tax implications, and your long-term retirement strategy.
For expats and nonresident aliens, these factors are even more nuanced due to cross-border tax considerations and investment restrictions.
A qualified financial adviser such as Titan Wealth International can help you navigate these complexities and choose a rollover strategy that supports your global financial goals.
Key Takeaway
Rollover IRAs and Roth IRAs both help you manage retirement savings outside of employer-sponsored plans, but their structure and tax treatment differ. A rollover IRA is used to transfer funds from qualified retirement accounts like a 401(k), while a Roth IRA is typically funded through after-tax personal contributions.
This guide clarified that rollover IRAs can take the form of either a traditional or Roth IRA, depending on how the transfer is structured. We also outlined the key differences between these accounts and traditional IRAs not funded through rollovers.
We reviewed the best investment options such as stocks, bonds, ETFs, and mutual funds, and evaluated top providers for 401(k) rollovers, including those suited to passive and active investors.
At Titan Wealth International, we offer cross-border financial guidance tailored to expats and nonresident aliens. Our specialists can review your existing 401(k), identify tax-efficient rollover options, or options beyond 401(k) plans, and help you structure a globally compliant retirement strategy that aligns with your long-term goals.
