Should You Roll Your Old 401(k) Into an IRA in 2026?

You do not automatically need to roll an old 401(k) into an IRA when you change jobs. Compare keeping it in the old plan, moving it to your new employer's plan if allowed, and using an IRA before choosing a destination; those are distinct options in the SEC's job-change guidance.

As a Houston hourly, fee-only planner, I would start with what the account needs to do for you, not with a transfer form. Easier paperwork is useful, but it does not settle whether a move is right.

This is general education, not advice for your specific situation.

Why revisit an old 401(k) this fall?

The IRS released new sample rollover forms in August, and the public-comment period closes October 23, 2026. Their use is optional for plan sponsors; they cover transfers between plans and between plans and IRAs, not IRA-to-IRA transfers (IRS announcement).

That is an administrative development, not a deadline to move your savings. If someone presents the new forms as a reason you must act this week, separate the actual account decision from the paperwork.

For a Houston household changing employers, retiring or taking time between jobs, I would put this review alongside health coverage and cash-flow planning. The point is to coordinate decisions rather than consolidate accounts just because a new account is easy to open.

What are your options after leaving an employer?

The SEC identifies four broad choices: leave money in the former employer's plan if permitted, move it to an accepting new employer plan, roll it into an IRA, or take a cash distribution. Cashing out can trigger income tax and an additional early-distribution tax (SEC).

The options come from the SEC's switching-jobs guidance; acceptance by a new plan is not mandatory under the IRS rollover guidance.

Ask for costs in dollars as well as percentages. Compare plan administration charges, fund expenses, account charges and any proposed advice fee; fees can materially reduce investment results (SEC fee guidance).

How can a rollover create a withholding problem?

A direct rollover means the plan pays the receiving plan or IRA, rather than making the distribution payable to you. Mandatory withholding does not apply; a check sent through you can still qualify if payable to the receiving plan or IRA (IRS rollover instructions).

If an employer plan instead pays an eligible taxable distribution to you, it generally withholds 20%. You normally have 60 days from receipt to complete the rollover, and must replace the withheld amount from other funds to roll over the entire distribution (IRS Topic 413).

Here is a hypothetical illustration, not a client example. On an entirely pretax $100,000 distribution paid to you, 20% withholding leaves $80,000 in hand. Completing a full $100,000 rollover would require another $20,000 from outside the account; rolling over only $80,000 leaves $20,000 taxable under the IRS's withholding rules.

The amount withheld is a tax payment, not necessarily your final tax liability. If you are under 59½, a taxable portion not rolled over may also face a 10% additional tax unless an exception applies (IRS Topic 413).

My practical suggestion: ask both administrators to confirm the payee instructions before authorizing the distribution. Do not assume that every check labeled “rollover” has the same tax handling.

Could an IRA rollover change access before retirement?

Yes. A separation-from-service exception can avoid the 10% additional tax on employer-plan distributions when you leave during or after the calendar year you turn 55; that exception does not apply to IRAs (IRS exception table).

That distinction matters if retirement begins before 59½. You can move money without immediate income tax in a qualifying rollover but still change the rules for accessing it afterward (IRS rollover rules, IRS early-distribution rules).

This is not a promise that the old plan will offer your preferred payment schedule. Ask its administrator about permitted distributions, and remember that avoiding the additional tax does not eliminate ordinary income tax on pretax withdrawals (IRS exception guidance).

I would model the spending bridge first, then choose the account destination. Do not let a desire for fewer statements override a known need for access.

What if you also make backdoor Roth contributions?

Pause before adding a large pretax balance to a traditional IRA. The tax calculation for distributions and conversions considers traditional IRA basis and aggregated balances, generally including traditional SEP and SIMPLE IRAs; keeping the new rollover in a separate IRA does not isolate it for this calculation (IRS Form 8606 instructions).

Have your preparer model the effect before transferring. A conversion is not automatically tax-free merely because the contribution being converted was nondeductible; the IRA aggregation rules matter (IRS Form 8606 instructions).

The cited instructions currently describe the 2025 form. They explain the aggregation mechanics, not a newly announced 2026 contribution limit; check the applicable tax-year form when filing.

Also distinguish an ordinary backdoor Roth IRA strategy from a mega backdoor Roth through an employer plan. I would review the existing balances and contribution sources together rather than evaluate either strategy in isolation.

Is rolling into a Roth IRA the same transaction?

No. Moving pretax plan money into a traditional IRA generally preserves tax deferral, while moving it to a Roth IRA generally brings the previously untaxed amount into taxable income. A direct rollover is not automatically tax-free just because it avoids mandatory withholding (IRS Topic 413).

Identify pretax, designated Roth and other after-tax sources before giving transfer instructions. After-tax amounts have their own rollover rules, so a mixed account deserves more care than a single total-balance instruction (IRS Topic 413).

If a Roth conversion is intentional, include it in your year-end tax projection. Do not accidentally turn an account-consolidation exercise into an income-recognition decision.

What should you check before signing the forms?

I would collect the following before requesting a distribution. The purpose is to document why the receiving account fits, not merely to prove that the paperwork can be processed.

• Identify which assets are pretax, Roth or other after-tax money.
• Compare the old plan, an accepting new plan and an IRA on total costs and usable features.
• Check whether early-access needs favor keeping money in an employer plan.
• Review traditional, SEP and SIMPLE IRA balances with your preparer if Roth conversions are part of your planning.
• Confirm the receiving account's title, number and payee instructions.
• Ask whether any distribution is ineligible for rollover.

Required minimum distributions and hardship distributions, among other payments, cannot be rolled over. The one-rollover-per-year rule is a different issue: it restricts certain IRA-to-IRA rollovers, but does not apply to plan-to-IRA rollovers or direct trustee-to-trustee IRA transfers (IRS rollover guidance).

If you also have nonqualified deferred compensation, keep that analysis separate. Do not treat every benefit listed in an exit packet as if it were a 401(k).

How can Mercer Street help with the decision?

At Mercer Street, we provide advice without taking over your accounts or charging a percentage of your assets. A rollover review can be a limited-scope planning project, coordinated with your tax preparer and the plan administrators.

Limited-scope work is $600 per hour with a two-hour minimum ($1,200); clients who have completed a comprehensive plan receive our $450 hourly rate. Our services page explains the engagement options and how we work.

If you want help comparing the destinations before moving money, schedule a free fit meeting. We can discuss the decision you need to make and whether a focused review is a fit.