When you switch jobs, you will probably also start a new retirement account. What happens to the old account? Consider managing that money in four ways.
1. Let Your Money Sit in Your Former Employer's 401(k)
You usually have anywhere from 30 to 90 days to decide if this option is for you, and you can use it if you have at least $5,000 in your account. While this option is easy—especially if you have a good 401(k) plan—you may pay an extra fee to maintain the account, and you may not be able to access your funds for any reason until you retire.
2. Roll the Account Into a 401(k) Plan With Your New Employer
Consolidating all your retirement money into one account makes keeping track of performance easier. Check the new plan's investment options to make sure you have access to similar benefits and fees as your old plan. For more general guidance on employer plans and related accounts, see Workplace retirement plans, FSAs, HSAs, and saving tips.
3. Open an Individual Retirement Account (IRA)
An IRA gives you control of your retirement money. With an IRA you have the freedom and flexibility to choose investments such as stocks, bonds, and mutual funds, and IRAs often charge lower fees than 401(k) plans. Ask your former employer to complete a direct transfer from the old 401(k) to your new IRA to avoid taxes.
4. Cash Out Your Old Account
Cashing out gives you immediate cash to repay debt or cover expenses, but you will owe income taxes on the full amount and may owe an early-withdrawal penalty if you are under the plan's age threshold. Emptying the account also reduces the money you have saved for retirement.
When you switch jobs, you can handle your old retirement account in several ways. If you need professional guidance, consider Retirement Planning Services. Talk to your financial advisor, human resources manager, or talk to an agent for additional information as you make the best decision for your future retirement.
Frequently Asked Questions
Can I keep my old 401(k) after leaving a job?
Yes—many plans allow you to leave funds in a former employer's 401(k) if your balance meets the plan minimum, but you may face limited options or additional fees.
What is a direct rollover and why does it matter?
A direct rollover moves money from one tax-advantaged account to another without you taking possession of the funds, which helps avoid immediate taxes and penalties.
Will I owe taxes if I roll my 401(k) into an IRA?
If you do a direct rollover to a traditional IRA, you typically will not owe taxes; however, indirect rollovers or conversions to a Roth IRA can have tax consequences.