Rollover a Defined Benefit Pension Plan to an IRA, 401(k) Plan, or SEP-IRA

This article has been updated for 2026.

Can you rollover a Defined Benefit Pension Plan to an IRA, 401(k), or SEP? Yes, most participants in small Defined Benefit or Cash Balance Plans can roll their benefit into one of these qualified retirement accounts, subject to IRS rules and plan provisions. In contrast, most large corporate Defined Benefit Plans do not offer a lump-sum option and therefore cannot be rolled over.

Rolling over preserves tax-deferred growth, provides more control over investments, and allows participants to consolidate retirement savings in a single account. In general, the same rollover rules apply whether you choose an IRA, an employer-sponsored 401(k), or a SEP-IRA.

This article explains the rules around a Defined Benefit Plan rollover to an IRA or other qualified plan, including when rollovers are permitted, where funds can be transferred, how taxes apply, and important considerations such as spousal consent.

Background: Defined Benefit Plan Rollover to an IRA

When an employee retires, changes jobs, or an employer terminates the plan, the participant may be entitled to receive a payout. Depending on plan provisions, this could take the form of:

• An annuity: Regular payments for life or a specified term.
• A lump-sum distribution: Paid in cash.
• A rollover: A lump sum transferred to an IRA, 401(k), or SEP IRA.

Large corporate pensions often restrict lump sums unless the payout is relatively small or the plan is structured as a Cash Balance Plan. Smaller Defined Benefit Plans, especially those used by closely held businesses, are more likely to offer lump sum distributions to all participants.

If the lump sum option is available, a participant can continue tax deferral by rolling the payout to an IRA, 401(k), SEP, or another qualified retirement plan. Alternatively, they may take the distribution directly, which triggers immediate income taxation and, in some cases, additional excise tax.

When Can a Defined Benefit Plan Be Rolled Over?

A rollover requires a “distributable event.” Common examples include:

• Separation from service (retirement or leaving the employer)
• Plan termination by the employer
• Death of the participant (with benefits payable to a beneficiary)

Without a distributable event, rollover rights generally do not apply.

Where You Can Rollover a Defined Benefit Plan

While IRAs are a common destination for rollovers, funds from a Defined Benefit Plan can also be transferred to several other qualified retirement accounts, giving participants flexibility in managing their retirement savings, such as:

• Traditional IRAs
• Roth IRAs (taxable at rollover)
• Employer-sponsored plans that accept rollovers, including:
  • 401(k) and Profit Sharing Plans
  • SEP-IRAs
  • SIMPLE IRAs
  • 403(b) plans
  • Governmental 457(b) plans

The receiving plan must allow rollovers (some plans may not). Once transferred, funds become subject to the rules of the new plan — including withdrawal restrictions, investment options, and required minimum distribution (RMD) timing.

Spousal Consent for Lump Sum Payments and Rollovers

Defined Benefit Plans require spousal consent for lump-sum distributions over a specified threshold (generally $5,000 or $7,000). This ensures both spouses agree to a lump sum payment or rollover before giving up the guaranteed income of a pension. Once consent is obtained, the funds can be rolled over to an IRA, 401(k), or SEP-IRA.

How Much Can Be Rolled Over?

In most cases, the participant’s fully vested account balance can be rolled over to another qualified plan or IRA. However, several important exceptions apply:

• Defined Benefit Plan Rollover Limitation: The amount that can be rolled over from a Defined Benefit or Cash Balance Plan cannot exceed the IRS lifetime benefit maximum. To estimate this limit, use our Defined Benefit Plan Lifetime Limit Calculator.
• Required Minimum Distributions (RMDs): Once a participant reaches the RMD age (currently age 73 or 75, depending on date of birth), RMD amounts cannot be rolled over.
• After-tax contributions: If the plan required or permitted after-tax contributions, those amounts can still be rolled over but must be tracked separately to avoid double taxation.

At payout, the plan administrator should provide information on which portions of the distribution are eligible for rollover, including any after-tax contributions or amounts subject to required minimum distributions.

Direct Rollover vs. 60-Day Rollover

Once a distributable event occurs and a participant decides to rollover their Defined Benefit or Cash Balance Plan distribution, there are two primary ways to complete the transfer.

• Direct rollover (trustee-to-trustee transfer):
  • The Defined Benefit Plan transfers funds directly to the IRA or new employer plan.
  • No withholding applies.
  • Easiest and most secure method.

• 60-day rollover:
  • The distribution is paid to the participant, who must redeposit it into an IRA or qualifying plan within 60 days.
  • Missing the deadline typically triggers taxation and penalties, though a waiver through a Private Letter Ruling.

Note: If the total annual payout is under $200, the plan is not required to offer a direct rollover. However, the participant may execute a 60-day rollover.

Taxation of Rollovers and Distributions

The tax outcome depends on whether funds are rolled over:

• Rolled over: Tax-deferred growth continues. No income tax is due until withdrawals are made from the IRA or the receiving plan.
• Not rolled over: The distribution is taxed as ordinary income in the year received.

Additional 10% Excise Tax

Participants under age 59½ face a 10% early withdrawal penalty for amounts not rolled over, unless an exception applies. Key exceptions include:

• Participant, who is at least 55, separates from service
• Disability or death
• Certain court-ordered distributions in divorce (QDROs)
• Several additional exceptions not listed here may apply

Once a participant rolls over the Defined Benefit payout to an IRA, some exceptions no longer apply—for example, the age 55 and court-ordered decree exceptions. However, other IRA-specific exceptions may still allow penalty-free withdrawals related to higher education, a first-time home purchase, or unemployment.

State tax rules may differ and should be reviewed separately.

Roth Rollover

Rather than rolling over a Defined Benefit distribution to a Traditional IRA, the participant may transfer the payout to a Roth IRA.

Roth IRAs are generally not subject to income tax at payout. As a result, the entire Roth rollover is taxed at the time of transfer. In this case, the 10% excise tax does not apply unless a distribution from the Roth IRA is taken within 5 years.

Defined Benefit Plan Rollover After the Death of the Participant

If a participant dies, the ability to rollover a Defined Benefit or Cash Balance Plan distribution depends on the beneficiary’s relationship to the participant:

• Surviving spouse: The surviving spouse has two options. They can roll the funds into their own IRA, in which case the account is treated as their own, and normal IRA rules for required minimum distributions (RMDs) and early withdrawal penalties apply based on the spouse’s age. Alternatively, the surviving spouse can treat the account as an inherited IRA. In this case, RMDs and withdrawal rules depend on the participant’s age at death.
• Non-spouse beneficiary: Non-spouse beneficiaries may only roll the funds into an inherited IRA; they cannot treat the account as their own. Under the SECURE Act, the inherited IRA must generally be fully distributed within 10 years of the participant’s death, and the 10% early withdrawal penalty does not apply.

Rollovers Related to Court-ordered Decrees

Under a qualified domestic relations order (QDRO), a spouse or former spouse may receive a share of the participant’s benefit. In these cases, rollover rules generally mirror those available to the participant, and the 10% penalty for early distribution does not apply.

Non-resident Alien Rollovers

For nonresident aliens, U.S. tax rules for pension and retirement plan distributions are stricter than for U.S. citizens or residents.

• Direct rollovers: If the participant completes a direct rollover to an IRA or a qualifying employer plan, the funds are not subject to immediate U.S. taxation. This is generally the preferred method to maintain tax deferral.
• Distribution to the participant: If the funds are instead paid directly to the nonresident alien, the plan must withhold 30% for federal taxes rather than the standard 20% applied to U.S. residents.
• Excess withholding: If the 30% withholding exceeds the actual tax owed, the nonresident alien may file a U.S. tax return to claim a refund. Additional guidance can be found in IRS Publication 519 (U.S. Tax Guide for Aliens) and IRS Publication 515 (Withholding of Tax on Nonresident Aliens and Foreign Entities).

Key Takeaways: Defined Benefit Plan Rollover to IRA

• Yes, you generally can rollover a pension to an IRA, 401(k), or SEP, but this is generally only possible in small defined benefit plans; most large corporate plans do not offer a lump-sum option.
• A distributable event (separation, termination, or death) is required before a rollover.
• Direct rollovers are preferable to 60-day rollovers for simplicity and to avoid deadlines.
• Spousal consent is required for lump-sum distributions over $5,000 (or $7,000).
• Taxes apply immediately if distributions are not rolled over. Special rules apply to Roth conversions, death benefits, and QDROs.

By understanding these rules, participants can make informed choices that preserve retirement savings and maximize tax benefits.

More information can be found in IRS Publications 575 (Pension and Annuity Income), 590A (Contributions to Individual Retirement Arrangements (IRAs)), 590B (Distributions from Individual Retirement Arrangements (IRAs)), and 571 (Tax-sheltered Annuity Plans).