Yes, you can rollover your 401(k) to Betterment—and for many people, it makes sense. Betterment accepts traditional 401(k), Roth 401(k), and other employer-sponsored retirement plan rollovers into Traditional IRAs or Roth IRAs. The IRS permits rollovers between qualified retirement accounts without triggering immediate taxes, as long as you follow the proper procedures.
The real problem? Americans have abandoned an estimated 31.9 million 401(k) accounts totaling over $2.13 trillion in assets. The average balance in these forgotten accounts is now $66,691. Leaving retirement savings behind can cost workers up to $500,000 in missed gains over a career due to outdated investments, higher fees, and asset allocations that no longer match their goals.
Here’s what you’ll learn in this article:
🔑 The exact steps to rollover your 401(k) to Betterment without tax penalties
💰 How Betterment’s fees compare to traditional 401(k) plans and other brokerages
📊 Three real scenarios showing when a Betterment rollover makes sense (and when it doesn’t)
⚠️ The five biggest rollover mistakes that trigger surprise taxes
❓ Answers to the most common rollover questions people ask
What Betterment Offers Retirement Savers
Betterment is a robo-advisor—a digital platform that builds and manages your investment portfolio using algorithms instead of human advisors. For retirement accounts, Betterment offers Traditional IRAs, Roth IRAs, SEP IRAs, and Inherited IRAs. In January 2026, Betterment partnered with Capitalize to modernize the 401(k) rollover process, making it easier to locate and consolidate old retirement accounts.
The platform puts investing on autopilot. Betterment handles all trading, rebalancing, and dividend reinvestment without you lifting a finger. For people who want a hands-off approach to retirement saving, this automation removes the burden of researching individual stocks and bonds, monitoring market conditions, and making buy-sell decisions.
Betterment Fee Structure Breakdown
Betterment charges either a flat monthly fee or an annual percentage fee, depending on your account balance and deposit habits.
| Balance/Activity | Fee Charged |
|---|---|
| Under $24,000 without $200/month recurring deposits | $5 per month |
| $24,000+ balance OR $200/month recurring deposits | 0.25% annually |
| Premium plan ($100,000+ minimum) | 0.65% annually |
| Balances over $2 million | 0.10% discount applies |
For a $50,000 account, you would pay roughly $125 per year in advisory fees (0.25% × $50,000). By comparison, Fidelity Go charges $0 for balances under $25,000 and 0.35% for balances above that threshold. Traditional financial advisors typically charge 1% or more annually.
Betterment also charges a $75 fee for ACATS transfers out to another brokerage. This fee applies if you decide to leave Betterment in the future and want to move your investments to a different provider.
Investment Portfolios Available at Betterment
Betterment offers 101 different allocation options ranging from 100% bonds to 100% stocks. The platform builds portfolios using low-cost exchange-traded funds (ETFs) from multiple asset classes.
| Portfolio Name | Best For | Key Features |
|---|---|---|
| Core Portfolio | Most investors | Broad diversification, lowest fees |
| Goldman Sachs Smart Beta | Beating market averages | Mix of passive and active funds |
| BlackRock Target Income | Retirees | 100% bond focus, income generation |
| Socially Responsible Investing | Values-aligned investing | ESG-focused funds |
| Flexible Portfolio | Customization | Adjust individual asset weights |
The Core Portfolio is the most popular choice for rollover accounts. It offers exposure to U.S. stocks, international developed markets, emerging markets, U.S. bonds, and international bonds. Betterment automatically rebalances your portfolio when it drifts from your target allocation.
The Two Ways to Rollover a 401(k)
The IRS allows two methods for moving retirement funds: direct rollovers and indirect rollovers. The method you choose has major tax consequences.
Direct Rollover (Trustee-to-Trustee Transfer)
A direct rollover means your old 401(k) plan administrator sends the money straight to Betterment. You never touch the funds. This is the safest and simplest method because no taxes are withheld and there are no deadlines to meet.
With a direct rollover, your former employer writes a check payable to your new IRA custodian “for the benefit of” (FBO) your name. The check goes directly to Betterment, and you receive Form 1099-R with code “G” in Box 7, indicating a direct rollover. Box 2a (taxable amount) should show $0 for transfers between same-type accounts.
Indirect Rollover (60-Day Rollover)
An indirect rollover means you receive the money yourself and must deposit it into a new retirement account within 60 days. Miss this deadline, and the IRS treats the entire amount as taxable income plus a 10% early withdrawal penalty if you’re under 59½.
Here’s the bigger problem: your employer must withhold 20% for federal taxes on indirect rollovers—even if you plan to deposit everything into a new account. If your 401(k) balance is $50,000, you only receive $40,000. To complete a full rollover, you must come up with the missing $10,000 from your own pocket and deposit all $50,000 into your new IRA within 60 days. You get the withheld amount back when you file taxes, but only if you deposited the full amount on time.
| Rollover Type | Tax Withheld | Deadline | Risk Level |
|---|---|---|---|
| Direct (trustee-to-trustee) | $0 | None | Low |
| Indirect (60-day) | 20% mandatory | 60 days | High |
The IRS also limits you to one indirect IRA-to-IRA rollover per 12-month period. This rule does not apply to direct rollovers or to 401(k)-to-IRA rollovers.
Step-by-Step Process for Rolling Over to Betterment
The rollover process typically takes 7-10 business days after the funds leave your old provider. Here’s exactly how to complete the transfer.
Step 1: Gather Your Account Information
Before starting, collect your old 401(k) account number, your most recent statement, and a valid photo ID. Confirm whether your account contains traditional (pre-tax) funds, Roth (after-tax) funds, or both. If you have both types, you’ll need to submit separate rollover requests for each portion.
Step 2: Open a Betterment IRA
If you don’t already have a Betterment account, sign up and choose the appropriate IRA type. Match your new account to your old account’s tax treatment:
| Old Account Type | Betterment Account to Open | Tax Consequence |
|---|---|---|
| Traditional 401(k) | Traditional IRA | None (tax-deferred remains tax-deferred) |
| Roth 401(k) | Roth IRA | None (after-tax remains after-tax) |
| Traditional 401(k) | Roth IRA | Entire balance taxed as income |
Rolling a traditional 401(k) directly into a Roth IRA is called a conversion. You’ll owe income tax on the full converted amount in the year you make the transfer.
Step 3: Request a Direct Rollover From Your Old Provider
Contact your former employer’s 401(k) plan administrator. Ask them to send your balance directly to Betterment. Provide them with:
- Betterment’s mailing address for checks
- Your new Betterment IRA account number
- Confirmation that the check should be made payable to Betterment FBO [Your Name]
According to Betterment’s rollover page, you can generate the required rollover form by logging into your account and navigating to Transfer or Rollover > Rollover to Betterment.
Step 4: Monitor the Transfer and Invest the Funds
Follow up with both your old provider and Betterment to track the transfer status. Once the funds arrive, you must invest them—they don’t automatically go into the market. As Fidelity’s rollover guide warns, leaving rollover money sitting in cash is one of the most common mistakes. Choose your portfolio allocation in Betterment so your retirement savings start working for you.
Three Scenarios: When Rolling to Betterment Makes Sense
Scenario 1: Marcus Left His Job and Wants Simplicity
Marcus, 35, worked at a tech startup for four years. He just accepted a new position at a larger company. His old 401(k) has $85,000 and charges 0.75% in annual plan fees. His new employer’s 401(k) has limited fund options with high expense ratios averaging 0.90%.
| Option | Outcome |
|---|---|
| Leave 401(k) with old employer | Cannot contribute; may pay higher fees as a separated employee |
| Roll to new employer’s 401(k) | Limited fund choices; fees total 0.90% annually |
| Roll to Betterment IRA | 0.25% advisory fee + ~0.10% fund costs = ~0.35% total |
Result: Marcus saves approximately 0.40-0.55% annually by rolling to Betterment. Over 30 years, this could mean tens of thousands of dollars in extra retirement savings due to compound growth. Betterment’s tax-loss harvesting feature can offset some or all of his advisory fees through realized tax savings.
Scenario 2: Jennifer Wants the Rule of 55 Benefit
Jennifer, 56, just left her company after 20 years. Her 401(k) contains $350,000. She plans to retire early and needs access to funds before age 59½.
| Option | Outcome |
|---|---|
| Keep 401(k) with former employer | Access funds now penalty-free under Rule of 55 |
| Roll to Betterment IRA | Lose Rule of 55 access; 10% penalty on withdrawals until 59½ |
Result: Jennifer should not roll over her 401(k) yet. The Rule of 55 allows penalty-free withdrawals from a current employer’s 401(k) if you separate from service during or after the year you turn 55. This exception only applies to the 401(k) from the employer you just left—not to IRAs. Rolling over would cost Jennifer 10% in penalties on any early withdrawals.
Scenario 3: David Has Company Stock With Major Gains
David, 62, is retiring with $500,000 in his 401(k). Of that, $200,000 is company stock he accumulated over 25 years. His original cost basis in that stock is only $30,000.
| Option | Outcome |
|---|---|
| Roll everything to Betterment IRA | Pay ordinary income tax on all future withdrawals |
| Use NUA strategy for company stock | Pay ordinary income tax on $30,000 basis now; pay long-term capital gains on $170,000 later |
Result: David should consider the Net Unrealized Appreciation (NUA) strategy before rolling over. With NUA, he can transfer the company stock to a taxable brokerage account and pay ordinary income tax only on the original $30,000 cost basis. When he sells the stock later, the $170,000 in appreciation gets taxed at the lower long-term capital gains rate (0%, 15%, or 20%) instead of his higher ordinary income tax rate. This strategy can save thousands in taxes.
Betterment vs. Leaving Your 401(k) or Using Traditional Brokerages
Should you roll over at all? Let’s compare the main options.
Keeping Your 401(k) With Your Former Employer
Most employers let you leave your 401(k) in their plan if your balance exceeds $7,000 under the SECURE 2.0 Act. If your balance is between $1,000 and $7,000, your employer may automatically roll your funds into an IRA. Balances under $1,000 may be cashed out and mailed to you as a check.
Leaving money behind has some benefits. You keep access to the plan’s institutional fund pricing, which can be lower than retail pricing. You also retain creditor protection under ERISA, which may be stronger than IRA protections depending on your state. The downside: you can no longer contribute, you’re stuck with the plan’s investment options, and you might forget about the account entirely.
Betterment vs. Fidelity vs. Vanguard
| Factor | Betterment | Fidelity Go | Vanguard PAS |
|---|---|---|---|
| Advisory Fee | 0.25% | 0% under $25K; 0.35% above | 0.30% |
| Account Minimum | $0 | $0 | $50,000 |
| Human Advisors | Premium only (0.65%) | Included above $25K | Included |
| Tax-Loss Harvesting | Yes | No | Yes (limited) |
| Rebalancing | Automatic | Automatic | Automatic |
| Transfer-Out Fee | $75 | $0 | $0 |
For hands-off investors who want automated management without meeting advisors, Betterment’s 0.25% fee and $0 minimum make it accessible. Fidelity Go costs less for smaller balances but lacks tax-loss harvesting. Vanguard requires $50,000 to start and is better suited for investors who want more human guidance.
The Hidden Cost of DIY Investing
If you’re considering a traditional brokerage where you manage investments yourself, remember: you’ll pay $0 in advisory fees but must handle all research, trading, rebalancing, and tax optimization yourself. According to Betterment’s tax-loss harvesting analysis, 69% of customers using this feature had their advisory fees covered by the tax savings it generated.
Betterment IRA Pros and Cons
| Pros | Cons |
|---|---|
| No account minimum required | 0.25% fee adds up on large balances |
| Automated rebalancing keeps portfolio aligned | Limited control over individual fund selection |
| Tax-loss harvesting can offset advisory fees | $75 fee to transfer assets out |
| Goal-based planning tools help track progress | Human advisors require Premium ($100K+ and 0.65% fee) |
| SIPC protection up to $500,000 | No access to individual stocks (unless using Self-Directed) |
| Socially responsible investing options available | Cannot replicate exact holdings from your old 401(k) |
The Five Biggest Rollover Mistakes to Avoid
Mistake 1: Choosing an Indirect Rollover When Direct Is Available
The 20% mandatory withholding on indirect rollovers catches many people off guard. If you receive $40,000 from a $50,000 balance and deposit only that amount, the IRS treats the missing $10,000 as a taxable distribution. You’ll owe income taxes plus a 10% penalty if you’re under 59½.
Solution: Always request a direct rollover. Your money moves institution-to-institution without you touching it.
Mistake 2: Missing the 60-Day Deadline on Indirect Rollovers
Life gets busy. The 60-day clock starts ticking the moment you receive the distribution. If you deposit the funds on day 61, the entire amount becomes taxable. The IRS may grant a waiver for circumstances beyond your control, but you’ll need to self-certify and document the reason.
Solution: If you must do an indirect rollover, deposit the funds immediately—don’t wait.
Mistake 3: Leaving Rollover Funds in Cash
Your rollover is not complete until you invest the money. Moving funds to Betterment and leaving them sitting in cash means zero growth. Over 10 years, leaving $50,000 uninvested could cost you tens of thousands in missed returns.
Solution: Log into Betterment after the transfer completes and allocate your funds to your chosen portfolio.
Mistake 4: Ignoring Vesting Schedules
Your own contributions to a 401(k) are always 100% vested—they’re yours. But employer matching contributions often vest over time. Under ERISA, vesting follows either a three-year cliff or six-year graded schedule. Rolling over before you’re fully vested means leaving employer money behind.
Solution: Check your vesting status before initiating a rollover. If you’re close to a vesting milestone, it may pay to wait.
Mistake 5: Rolling Over When You Need the Rule of 55
If you’re between 55 and 59½ and might need access to retirement funds, think carefully. The Rule of 55 lets you tap your 401(k) penalty-free—but only from the employer you just left. Once you roll over to an IRA, you lose this benefit and face a 10% penalty on withdrawals until age 59½.
Solution: Plan your retirement income needs before rolling over. Consider leaving funds in the 401(k) if early access is likely.
Tax Reporting for Your 401(k) Rollover
All rollovers must be reported on your tax return, even when no tax is due. Your former employer’s plan administrator sends you Form 1099-R showing the distribution details. You’ll report this information on Form 1040.
For direct rollovers:
- Box 1 shows the gross distribution amount
- Box 2a should show $0 (or be blank) for non-taxable rollovers
- Box 7 shows distribution code G (direct rollover)
Enter the total distribution from Box 1 on Line 5a of Form 1040. Enter $0 (or the taxable amount if converting to Roth) on Line 5b. Write “ROLLOVER” next to Line 5b.
Your new IRA custodian (Betterment) sends you Form 5498 to confirm the rollover contribution. This form is for your records—you don’t file it with your return.
The Roth Conversion Question: Should You Convert During Your Rollover?
A Roth conversion means moving pre-tax 401(k) money into a Roth IRA. You pay income taxes now on the converted amount, but all future growth and withdrawals are tax-free. Whether this makes sense depends on your current and future tax brackets.
| Convert to Roth If… | Keep Traditional If… |
|---|---|
| You’re in a low tax bracket now | You’re in a high tax bracket now |
| You expect higher taxes in retirement | You expect lower taxes in retirement |
| You have decades for tax-free growth | You need withdrawals soon |
| You can pay taxes from non-retirement funds | Converting would push you into a higher bracket |
One critical rule: the Roth IRA five-year holding period starts fresh when you convert or open a new Roth IRA. Earnings withdrawn before the five-year period ends may be taxable, even if you’re over 59½. If you’re planning a Roth 401(k) rollover and don’t already have a Roth IRA, consider opening one with a small contribution now to start the clock.
Required Minimum Distributions and IRAs
Starting in 2024, you must begin taking required minimum distributions (RMDs) from traditional IRAs at age 73. This age increases to 75 for those born in 1960 or later. If you’re still working past age 73, you can delay RMDs from your current employer’s 401(k)—but not from an IRA.
Missing an RMD triggers a 25% penalty on the amount not withdrawn. If you correct the mistake within two years, the penalty drops to 10%. Roth IRAs have no RMDs during your lifetime, making them attractive for people who don’t need the income and want to pass assets to heirs.
Is Betterment Safe?
Betterment accounts are protected by SIPC insurance up to $500,000, including $250,000 for cash claims. SIPC protects against broker failure—not market losses. If your investments drop in value due to market conditions, insurance doesn’t cover that.
Betterment’s Cash Reserve accounts carry FDIC insurance up to $2 million through partner banks. The platform uses encryption and security protocols to protect your data and limits employee access to customer information.
Do’s and Don’ts for 401(k) Rollovers
| Do | Why |
|---|---|
| Request a direct rollover | Avoids 20% withholding and 60-day deadline |
| Compare fees before rolling | Your old 401(k) may have lower costs |
| Check your vesting schedule | Don’t leave employer contributions behind |
| Match account types (Traditional to Traditional) | Avoids immediate tax liability |
| Invest the funds after transfer | Leaving money in cash loses growth potential |
| Don’t | Why |
|---|---|
| Take cash and deposit later | 20% withheld; must replace from your pocket |
| Forget about old accounts | Lose track of retirement savings |
| Roll over if you’re 55-59½ and might need funds | Lose Rule of 55 penalty-free access |
| Ignore NUA if you have company stock | Could pay higher taxes on gains |
| Assume rollovers are automatic | You must initiate the process |
FAQs
Is rolling over a 401(k) to Betterment free?
Yes. Betterment charges no fee to receive rollover funds. Your old provider may charge a distribution fee. Betterment’s advisory fees begin after your account is funded.
Will I owe taxes on a direct rollover?
No. A direct rollover from a traditional 401(k) to a traditional IRA is not taxable. You owe taxes only if you convert to a Roth IRA.
How long does a Betterment rollover take?
7-10 business days. This includes mail time if your old provider sends a check and processing time at both institutions.
Can I roll over part of my 401(k)?
Yes. Many plans allow partial rollovers. You can leave some funds in your old 401(k) and roll over the rest to Betterment.
What happens if I miss the 60-day indirect rollover deadline?
Taxes and penalties apply. The IRS treats the distribution as taxable income plus a 10% early withdrawal penalty if you’re under 59½.
Does Betterment offer tax-loss harvesting for IRAs?
No. Tax-loss harvesting is only available for taxable accounts. IRAs already have tax-advantaged status, so harvesting losses provides no additional benefit.
Can I have multiple IRAs at different providers?
Yes. The IRS does not limit the number of IRAs you can own. Annual contribution limits apply across all accounts combined.
Is Betterment good for retirees taking withdrawals?
Yes. Betterment offers retirement income tools and the BlackRock Target Income Portfolio designed for income generation and reduced volatility.
What’s the minimum balance for Betterment Premium?
$100,000. Premium includes unlimited access to certified financial planners and costs 0.65% annually.
Can I roll a Roth 401(k) into a Betterment Roth IRA?
Yes. This transfer is not taxable since both accounts are funded with after-tax dollars. The Roth IRA’s five-year rule applies to earnings.