What to do with your 401(k) after leaving
When you leave a job, your 401(k) usually has four paths. You can leave it, move it, roll it to an IRA, or cash it out.
| Option | Upside | Downside |
|---|---|---|
| Leave it in the old plan | ✓ Nothing to move now | ✗ You cannot add new money. Old plan fees may still apply. |
| Move it to a new employer plan | ✓ One account to manage | ✗ Only if the new plan accepts transfers. Fees differ. |
| Roll it to an IRA | ✓ Often a wider range of investments | ✗ IRA fees vary by provider. Plan loans do not carry over. |
| Cash it out | ✓ Money is available now | ✗ Taxed as income. 20% withheld. A 10% extra tax applies before 59½ unless an exception applies. |
Source: https://www.finra.org/investors/learn-to-invest/types-investments/retirement/401k-investing/401k-rollovers and https://www.finra.org/rules-guidance/notices/13-45 and https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions and https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions
Read your plan's rules first
Your summary plan description lists the fees, rules and steps for leaving the plan. Read it before you choose.
Ask both providers about timing
Each plan sets its own paperwork and timing. Ask the old and new providers for their steps in writing.
Know what a cash-out costs
A cash-out is taxed as income. The plan withholds 20%, and a 10% extra tax can apply before age 59½.
Source: https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions and https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions
Keep track of the old account
Write down the provider name, the account number and the contact details. Store them with your retirement records.
Compare the four options evenly
No option fits every person. Weigh the upside and downside of each row in the table before you decide.
Common questions
Can I leave my 401(k) with my old employer?
Often, yes, if the plan allows it. Your summary plan description states the rules for people who no longer work there.
Do I have to decide right away?
Your plan sets its own timing rules. Ask the administrator for any deadlines in writing.
Does leaving a job stop my 401(k) contributions?
Yes. New contributions stop when your employment ends. The existing balance stays in the account under the plan's rules.
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