Can You Roll Over a Pension Plan Into an IRA?

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A pension plan is an employer-sponsored retirement plan that is generally only used by large corporations. Under a pension plan, an employer contributes enough money to the plan to guarantee workers a defined payout when they retire. An individual retirement account, as the name suggests, is a retirement plan set up by individual investors. You may be able to roll over your pension plan into your IRA, but you'll have to meet certain requirements.


Pension plans have more restrictions than IRAs when it comes to transferring or rolling over money. You cannot roll over your pension plan money to an IRA at any time. If you still work for the employer offering the pension plan, you typically can't access the money until you either reach age 65 or have been with the company for at least 10 years, whichever comes later. In some cases, an employer will allow for the earlier payout of benefits, which includes the ability to roll over funds to an IRA. If you have left your job for any reason, your employer must allow you to rollover your plan money to an IRA.

Direct Rollover

If you have permission to roll over your money to an IRA, the easiest and safest method is to choose a direct rollover. The administrator of the plan can electronically transfer your funds to your IRA once you complete the appropriate paperwork. Alternatively, you can receive a physical check made out in the name of your IRA account for you to deliver to your IRA custodian on your own. Either way, you can make a tax-free rollover from your pension plan directly into your IRA.

Indirect Rollover

You can choose to receive a check for your pension benefits rather than having the plan administrator roll your money over directly to your IRA. Under this process, known as an indirect rollover, you are responsible for getting the money into your IRA within 60 days. If you fail, your rollover becomes a taxable distribution. Also, your plan administrator is required to withhold 20 percent of your distribution for taxes. While you can recoup these taxes when you file your tax return, if you want to make a complete rollover of your pension funds you'll have to come up with the 20 percent that was withheld out of your own pocket.

Investment Considerations

Many employers will allow you to keep your money in a pension plan even after you have left the company. One of the advantages of a defined benefit plan, such as a pension plan, is that you know the amount of benefits you are supposed to receive from the plan. If you roll your money over to an IRA, you become responsible for the investment of the funds. If you choose poor investments, you could lose some or all of your retirement money. However, if you are an experienced investor, it's possible that gaining control over the choice of your investments in an IRA could result in even better returns than you could have received from your pension plan.