New Job, Old 401(k): What Should You Do With Your Retirement Money?

Changing jobs is exciting—but it raises a big question: what should you do with the 401(k) you left behind? Here’s a clear, practical guide to your options.

The Job Change Dilemma

Every year, workers change employers and leave behind billions in retirement accounts. Your old 401(k) represents years of savings and compounding—don’t treat it like loose change. When you leave a job, you usually have four choices:

Leave the 401(k) with your old employer
Roll it into your new employer’s 401(k)
Roll it into an IRA
Cash it out

Each choice has trade-offs. The right move depends on your goals, fees, investments, and how hands-on you want to be. If you’d like tailored guidance, schedule a meeting.

Step One: Inventory Your Existing 401(k)

Balance & vesting: Know what’s yours, including any employer match still vesting.
Investments & fees: Fund options, expense ratios, and plan admin costs matter.
Diversification & performance: Check your mix across stocks, bonds, and cash.
Pending contributions: Final paycheck deferrals and matches may still post.
Rules & deadlines: Some plans require action after separation; others don’t.

Your plan administrator can provide statements and rollover forms. HR and the provider remain responsible for assisting you even after you leave.

Option 1: Leave It With Your Old Employer

Pros: No immediate paperwork or taxes; potential access to low-cost institutional funds; strong ERISA creditor protection.

Cons: You can’t add new money; it’s easy to forget old accounts; employers can change providers or investment menus.

Taxes: None while assets remain invested.

Best for: Satisfied with fees and fund lineup—or not ready to decide.

Option 2: Roll It Into Your New Employer’s 401(k)

Pros: Consolidation and simplicity; continued tax-deferred growth; one login to manage.

Cons: Investment menu may be limited; plan fees could be higher; transfers can take time.

Taxes: A direct rollover (trustee-to-trustee) avoids taxes. With an indirect rollover, you must redeposit within 60 days.

Best for: You value simplicity and your new plan is solid.

Option 3: Roll It Into an IRA

Pros: Broad investment choice (ETFs, mutual funds, stocks, bonds); potentially lower costs; portable across jobs; optional professional management.

Cons: Generally less creditor protection than ERISA plans (state-dependent); self-management unless you hire an advisor; no loan feature.

Taxes: Traditional 401(k) → Traditional IRA is tax-deferred. Converting to a Roth IRA triggers taxes now for potential tax-free withdrawals later (subject to Roth rules).

Best for: You want flexibility and control—or customized management aligned to your goals.

Option 4: Cash Out (Last Resort)

Pros: Immediate liquidity and account closure.

Cons: Ordinary income taxes, potential 10% penalty if under 59½, and lost compounding. Plans often withhold 20% for federal taxes upfront.

Example: Cashing out $50,000 could result in 30–40% lost to taxes and penalties depending on your bracket.

Chart showing how higher 401(k) plan fees can reduce long-term account growth compared to a lower-cost IRA over 20 years. — Plan fees vs. IRA costs over 20 years — showing how a 1% fee difference compounds into a major gap in final account value.

Key Tax Rules to Remember

Early withdrawals: Usually a 10% penalty before age 59½ (exceptions exist, e.g., “Rule of 55,” disability, QDROs).
60-day rule: Indirect rollovers must be completed within 60 days to avoid taxes/penalties—prefer direct rollovers.
Roth vs. Traditional: Keep Roth 401(k) money Roth (to a Roth IRA) to preserve tax-free treatment.
After-tax contributions: Direct pre-tax to Traditional IRA and after-tax to Roth IRA when applicable.
State taxes: Check your state’s rules; a CPA can help quantify the impact.

Compare Your Options at a Glance

Option	Pros	Cons	Taxes/Penalties	Best For
Leave with Old Employer	No action; tax-deferred growth; institutional funds	No new contributions; harder to track; plan can change	None while invested	Happy with fees and lineup
Roll to New 401(k)	Consolidation; simple to manage	Menu/fees may be limiting; transfer time	No tax if direct; 60-day rule for indirect	Those prioritizing simplicity
Roll to IRA	Wider choices; potential cost savings; portable	Less ERISA protection; DIY unless advised	Tax-deferred (Traditional); taxes on Roth conversions	Control and customization
Cash Out	Immediate cash	Taxes + 10% penalty; lost compounding	Taxable income; 10% penalty if under 59½	True emergencies only

401(k) options at job change — Leave with old employer, roll to a new 401(k), roll to an IRA, or cash out, with pros and cons for each path. — 401(k) options at job change — Leave → Roll to new plan → Roll to IRA → Cash out, with pros/cons callouts.

How to Decide: A Simple Framework

Prefer simplicity? Roll to your new employer’s plan.
Want flexibility/control? Consider an IRA (and optional professional management).
Happy with old plan? Leaving it can be fine, especially with low fees.
Need cash? Treat cashing out as a last resort after exploring other options.

Key Takeaway: Preserving tax-advantaged status and minimizing fees usually beat short-term convenience. A thoughtful rollover can add up to significantly more in retirement.

Not sure which path fits your situation? Schedule a 30-minute consultation to review fees, taxes, and investment fit. You can also learn more about our approach or contact us with questions.

FAQs

Can I roll my old 401(k) into my new plan anytime?

Yes—if the new plan accepts rollovers. Check with HR or the plan provider first.

What if I do nothing?

The account stays invested, but you can’t contribute more. Be sure to track it and review fees and investments periodically.

How do I avoid taxes during a rollover?

Request a direct rollover so funds move institution-to-institution without passing through your hands.