What to Do With an Old 401(k) After Changing Jobs

After changing jobs, you generally have four choices for an old 401(k): leave it in the former employer’s plan, roll it into the new employer’s plan, roll it into an IRA, or withdraw the money. For most people, preserving the account for retirement is preferable to cashing it out.

You do not need to move the account simply because you changed jobs. Take time to compare fees, investments, access rules and tax consequences. If you decide to move it, a direct rollover is usually the cleanest method because the money travels to the receiving retirement account without being paid to you.

What to do before choosing

1. Save the records. Download the latest statement, Summary Plan Description, fee disclosure and beneficiary confirmation.
2. Find every money type. Identify pre-tax, Roth, after-tax and employer contributions. They may require different destinations.
3. Check vesting. Your own contributions are yours, but unvested employer contributions may be forfeited after departure.
4. Investigate any loan. Leaving the job can change the loan’s repayment or offset treatment.
5. Compare total costs. Look beyond fund expense ratios to administration, advice, account and transaction fees.
6. Confirm the receiving account. A new workplace plan is not required to accept rollovers.
7. Update contact information. Make sure the old plan can reach you and that you can access the account.

Do not decide while completing exit paperwork in a hurry. Ask the plan administrator how long you can remain in the plan, whether any fees change after departure and whether a small balance can be moved automatically.

Option 1: Leave the money in the old 401(k)

Leaving the account can be perfectly reasonable. The investment lineup may be inexpensive, simple and better than what is available elsewhere. Large plans sometimes provide institutional share classes or negotiated pricing that an individual investor cannot easily obtain.

This option may work well when:

• The plan has low all-in fees and strong investments.
• You value federal workplace-plan creditor protections.
• You are satisfied with the asset allocation and services.
• Your new plan is expensive or does not accept rollovers.
• You separated from this employer in or after the year you turned 55 and may need the plan-specific early-distribution exception.

The tradeoff is another account, password, beneficiary form and investment allocation to monitor. Some plans charge former employees more or restrict loans and certain services. The employer may change recordkeepers or investment options, so keep your address and email current.

Option 2: Roll it into the new employer’s plan

Combining the old balance with the new workplace plan can make saving and rebalancing easier. It may also preserve plan features that an IRA does not provide. First confirm that the new plan accepts incoming rollovers and which account types it will accept.

Compare:

• Administrative and investment fees
• Fund quality and diversification
• Target-date or managed-account costs
• Withdrawal and loan rules
• Roth and after-tax rollover capability
• Creditor protection
• Access to advice
• Whether consolidating makes required distributions and beneficiary management easier later

Do not assume “newer” means better. A plan with a limited but inexpensive menu may beat one offering hundreds of costly choices. Compare the actual funds you would use.

Option 3: Roll it into an IRA

An IRA can offer broad investment choice and easier consolidation of several former-employer accounts. You choose the custodian and can generally select from funds, exchange-traded funds, bonds and other available investments rather than using one employer’s menu.

An IRA is not automatically cheaper or better. A low-cost self-directed IRA can be inexpensive, while an IRA holding commissioned products or charging an ongoing percentage of assets can cost much more than the old plan. Compare dollar costs, not just percentages.

Also consider:

• Workplace plans and IRAs can have different creditor protections under federal and state law.
• The age-55 separation exception generally applies to qualifying workplace-plan distributions, not IRA withdrawals.
• A pre-tax IRA balance can complicate the tax calculation for a future “backdoor” Roth IRA strategy.
• IRA investment flexibility can help a careful investor but overwhelm someone who prefers a curated plan menu.
• Some advisers have a financial incentive to recommend an IRA rollover, so ask for a written cost and feature comparison.

Option 4: Cash out the account

Cashing out is usually the most expensive long-term option. Previously untaxed money generally becomes taxable income, and an additional 10% tax may apply when no exception is available. The distribution also loses future tax-advantaged growth.

Suppose a 35-year-old cashes out a $25,000 pre-tax balance. The plan generally withholds 20% from an eligible distribution paid directly to the participant, but withholding is only a prepayment—not necessarily the final tax bill. Regular income tax and a possible additional tax can leave much less than $25,000 available. More importantly, the full balance is no longer working toward retirement.

If immediate cash is necessary, first check unemployment benefits, severance, health coverage, emergency savings, creditor hardship programs and other resources. Read the hidden cost of raiding a 401(k) before treating the account as ordinary savings.

Use a direct rollover when moving the money

With a direct rollover, the old plan sends the money directly to the new plan or IRA. A check may still be mailed to you, but it should be payable to the receiving trustee or custodian for your benefit—not payable to you personally.

1. Open the receiving IRA or confirm the new plan accepts the rollover.
2. Ask the receiving provider for exact check-payee and delivery instructions.
3. Contact the old plan and request a direct rollover.
4. Specify separate destinations for pre-tax, Roth and after-tax money when needed.
5. Keep confirmation numbers, statements and every tax form.
6. Confirm the money arrived and was invested. A completed rollover can sit in cash until you choose investments.
7. Review beneficiaries in the receiving account.

If the distribution is paid to you, the plan generally must withhold 20% of the taxable eligible rollover amount. You normally have 60 days to complete a rollover, and you must replace the withheld amount from other money to roll over the full distribution. A direct rollover avoids that withholding problem.

Keep pre-tax and Roth money straight

A direct rollover of pre-tax 401(k) money to a traditional IRA or eligible pre-tax workplace account generally preserves tax deferral. Moving pre-tax money to a Roth IRA is a Roth conversion and generally creates taxable income for the year.

Designated Roth 401(k) money is generally rolled to a Roth IRA or another plan’s designated Roth account. After-tax non-Roth contributions may require special instructions and can sometimes be directed to a Roth IRA while associated pre-tax amounts go elsewhere. Do not combine the pieces casually. Ask both administrators to identify every source before initiating the transaction.

What if you have a 401(k) loan?

Job separation can trigger plan-specific consequences for an outstanding loan. The plan may allow continued payments, require repayment or offset the unpaid balance against the account. An offset can become a taxable distribution unless handled under applicable rollover rules.

Before moving any account, ask the old administrator:

• Can payments continue after employment ends?
• When would a loan offset occur?
• What amount will appear on Form 1099-R?
• Does the offset qualify for an extended rollover deadline?
• Can the rest of the account be rolled over separately?

Loan-offset rules are technical. A tax professional can be valuable when the amount is significant.

Special consideration if you leave at 55 or later

If you separate from service during or after the calendar year in which you reach age 55, distributions from that employer’s qualified plan may qualify for an exception to the 10% additional tax. Ordinary income tax can still apply.

The exception generally does not follow the money into an IRA. Someone who expects to use this rule should examine the effect before rolling the entire balance away. Different rules can apply to certain public-safety employees and firefighters.

Small balances may be moved automatically

Current federal rules generally permit a plan to force out a vested balance of $7,000 or less if the plan document allows it. If a mandatory distribution is more than $1,000 and you do not make an election, it generally must be transferred to an automatic-rollover IRA. Amounts of $1,000 or less may be paid directly under plan terms.

Do not ignore letters from the old plan. An automatic-rollover IRA may hold conservative investments and charge fees. Acting promptly lets you choose the receiving account and investments yourself.

How to compare the old plan, new plan and IRA

The Department of Labor says an adviser recommending a rollover should compare alternatives, including leaving the account in the plan, as well as services, investments, fees and expenses. Ask why the recommended destination is better for you and how the adviser will be paid.

Common rollover mistakes

• Cashing the check. A direct rollover is simpler and avoids mandatory withholding on the transferred amount.
• Moving automatically to an expensive IRA. Compare actual costs and services first.
• Creating an accidental Roth conversion. Pre-tax money moved to Roth generally creates taxable income.
• Forgetting to invest after the transfer. The rollover may arrive in a cash settlement fund.
• Losing the age-55 option. Review early-access needs before moving money into an IRA.
• Ignoring company stock. Employer securities can have specialized tax treatment that deserves professional review before sale or rollover.
• Forgetting beneficiaries. A rollover creates a new account with its own designation.
• Leaving a trail of accounts. Multiple accounts are manageable only if you continue tracking them.

A simple decision guide

• Keep the old plan when it is inexpensive, well designed and provides features you value.
• Use the new plan when it accepts rollovers, compares favorably and consolidation will help you manage the money.
• Use an IRA when you value broader investments and control, and the total cost and protections fit your needs.
• Avoid cashing out unless the need outweighs taxes, possible additional tax and lost retirement growth.

If you are learning how workplace plans operate, start with 401(k) for Beginners. If the move changes your salary or benefits, revisit whether Roth or traditional contributions fit the new job.

Frequently asked questions

How long can I leave a 401(k) with a former employer?

A larger vested balance can often remain indefinitely, but plan terms control. Smaller balances may be subject to mandatory-distribution rules. Read notices and ask the administrator about the plan’s threshold and former-employee fees.

Is it better to roll an old 401(k) into an IRA or a new 401(k)?

Neither is universally better. Compare fees, investments, creditor protections, withdrawal rules, services and ease of management. The new plan must also accept the rollover.

Does a direct 401(k) rollover create taxes?

A direct rollover from pre-tax plan money to an eligible pre-tax plan or traditional IRA generally preserves tax deferral. Moving untaxed money to a Roth account generally creates taxable income.

Can I roll over only part of the old 401(k)?

Some plans permit partial distributions or rollovers, while others do not. Confirm plan rules and understand how pre-tax, Roth and after-tax amounts will be allocated.

Sources

• IRS: Retirement options after termination of employment
• IRS: Rollovers of retirement-plan distributions
• IRS: Rollovers of after-tax contributions
• IRS: Plan loan offsets
• IRS Topic 558: Additional tax on early plan distributions
• Department of Labor: Rollover advice and conflicts
• IRS: Current safe-harbor rollover explanations and mandatory distributions

Reviewed September 2026. This article provides general educational information, not individualized tax, legal or investment advice. Plan terms and tax rules vary and can change. Verify instructions with both plan administrators and consult an appropriate professional when needed.