What Is a Rollover IRA?

A rollover IRA is a traditional IRA funded primarily by rolling over assets from an employer-sponsored retirement plan like a 401(k) or 403(b) when you leave a job. When you change employers or retire, you can roll your workplace plan balance into a rollover IRA to keep the money growing tax-deferred while gaining access to a wider range of investment options than most employer plans offer. The rollover should be done as a direct transfer — money going straight from the plan to the IRA — to avoid the mandatory 20% withholding that applies when funds pass through your hands, as well as the 60-day rollover deadline. The main practical difference between a rollover IRA and a regular traditional IRA is that some people keep rollover assets in a separate account to preserve the ability to roll the funds back into a future employer's 401(k), which can offer better creditor protection under federal law. Once you mix rollover funds with regular IRA contributions, that option may become harder to maintain depending on the receiving plan's rules.