When you leave a job, you have four main options for your 401(k) retirement savings: leave it with your former employer, roll it over to your new employer's plan, roll it over to an Individual Retirement Account (IRA), or cash it out. The right choice depends on your financial situation, investment preferences, and retirement timeline.
15 steps across 2 sections
1. Steps Process
- Understand your options — Evaluate all four paths before making a decision:
- Leave it in your former employer's plan (if allowed)
- Roll over to your new employer's 401(k)
- Roll over to a traditional or Roth IRA
- Cash out (generally not recommended)
- Review your former plan's rules — Check if your former employer allows you to keep your money in their plan. Under SECURE 2.0, plans may force out balances:
- Under $1,000: may be cashed out by check
- $1,000-$7,000: must be auto-rolled into an IRA
- Over $7,000: generally can remain in the plan
- Compare plan options — Evaluate:
2. Key Tips
- A direct (trustee-to-trustee) rollover is almost always the best method — no withholding, no 60-day deadline pressure
- Rolling to an IRA typically gives you the most investment choices and lowest fees
- If you left your job at age 55 or older, you can take penalty-free withdrawals from your former employer's plan (this rule does not apply to IRAs until age 59.5)
- Roth 401(k) funds must be rolled to a Roth IRA to maintain their tax-free status
- Do not forget about old 401(k) accounts from previous jobs — consolidate them to simplify management
Common Mistakes
- Cashing out (triggers 10% early withdrawal penalty if under 59.5, plus income...
- Doing an indirect rollover and not depositing the full amount within 60 days
- Forgetting about the 20% mandatory withholding on indirect rollovers
- Not investing the rolled-over funds after they arrive in the new account (the...
- Rolling a Roth 401(k) into a traditional IRA (converts tax-free money into ta...
Pro Tips
- If you have both pre-tax and Roth contributions in your 401(k), they may need...
- Consider rolling to a Roth IRA if you are in a low tax bracket now — you will...
- If your former employer's 401(k) had institutional-class funds with very low ...
- Consolidate all old retirement accounts into one or two accounts to simplify ...
- Contact the receiving institution first — they will often help you initiate a...