Changing jobs brings new opportunities—but it also means making decisions about your old 401(k). Many people forget or delay managing their retirement savings during a job transition. That can lead to missed growth or unnecessary fees. If you’re wondering what to do with your 401(k) when you change jobs, this guide will help you make the right choice.
Leave the 401(k) with Your Former Employer
In some cases, you can leave your 401(k) where it is. If your balance is over $5,000, your former employer usually lets you keep it in their plan. This option is simple and requires no action. However, it may not be the best long-term move.
You lose easy access to the account. You also can’t make new contributions. Over time, you might forget about the account or miss changes to fees and investment options. If the old plan has high fees or poor performance, you might lose money in the long run.
Roll It Over to Your New Employer’s Plan
If your new employer offers a 401(k), consider rolling over your old account into the new one. This keeps your retirement savings in one place, making it easier to manage. You also continue contributing and enjoying the benefits of tax-deferred growth.
To do this, contact your former plan administrator and request a direct rollover to the new plan. This process moves your money directly without taxes or penalties. Avoid a cash-out or indirect rollover unless you’re ready to handle the tax consequences.
Roll It Into an IRA
Another smart option is to roll your 401(k) into an Individual Retirement Account (IRA). IRAs often offer more investment choices than a 401(k), and they usually have lower fees. You also gain more control over your money.
Choose between a traditional IRA or a Roth IRA, depending on your tax strategy. A rollover to a traditional IRA won’t trigger taxes. But if you move funds to a Roth IRA, you’ll owe taxes now, in exchange for tax-free withdrawals later.
A rollover to an IRA works best if your new job doesn’t offer a 401(k) or if you want better investment flexibility.
Cash Out—But Only If You Must
You can cash out your 401(k), but it’s usually the worst option. If you withdraw your money before age 59½, you’ll pay a 10% early withdrawal penalty plus income tax on the entire amount. You also lose all future investment growth.
Only consider this option if you’re facing a serious emergency and have no other sources of income. Even then, weigh the long-term cost of depleting your retirement savings.
Evaluate Fees and Investment Options
Before deciding what to do, compare the fees and investment choices in your old and new plans. Some 401(k)s offer better funds or lower costs than others. Use that information to decide whether to keep, roll over, or move your money.
If you’re unsure, talk to a financial advisor. They can help you pick the most cost-effective and growth-friendly option for your situation.
Avoid Mistakes with Direct Rollovers
When transferring your 401(k), always use a direct rollover. This method moves your money straight from one account to another. You avoid taxes and penalties this way.
With an indirect rollover, the plan sends the check to you. Then, you must deposit it into the new account within 60 days. If you miss the deadline, it counts as a withdrawal, and you’ll face taxes and penalties.
Conclusion
Your 401(k) holds the key to your financial future, so don’t ignore it during a job change. Whether you leave it, roll it over, or move it into an IRA, make sure the choice supports your retirement goals. Keep your savings growing and avoid unnecessary fees or penalties. Take control of your retirement plan—your future self will thank you.
