[GUIDE] What to do with your old 401(k) when you leave a job
So, you’ve left your job for a new one and don’t know what to do with your old workplace savings accounts? This guide should help.
TL; DR: Generally, you have four options for an old 401(k):
- Keep it in your old employer's plan
- Roll over the money into an IRA
- Roll over into a new employer’s plan
- Cash out
Workplace savings plans include 401(k)s, 403(b)s, and 457(b)s. In this thread, we’ll focus on 401(k) plans to keep things simple. Our goal is for you to understand your options to help you avoid costly mistakes and make the best decision for your circumstances.
https://reddit.com/link/1ok3pjp/video/h2whvusfgpxf1/player
What you need to know about your options
Option 1: Stay in your old workplace plan
If allowed by your former employer, you could keep your money where it is. You'll continue to have tax-deferred growth potential but won’t be able to contribute anymore. Note that investment options vary by plan.
Some benefits:
- Your money has the chance to continue to grow tax-advantaged.
- You can take penalty-free withdrawals from a plan sponsored by your former employer if you terminate employment at age 55 or older.
- Many plans offer lower-cost or unique investment options.
- Federal law provides broad protection against creditors.
But...
- If you choose to keep the funds in your former employer’s plan, you won’t be able to add any more money to the account or, in most cases, take a 401(k) loan.
- Withdrawal options may be limited. For example, you may not be able to take a partial withdrawal; you may have to take the entire balance.
- If you were born before 1960, once you reach age 73, you’ll have to take annual required minimum distributions (RMDs). For those born in 1960 or later, RMDs will start at age 75.
Option 2: Roll over to an IRA
When leaving a job or retiring, you can take charge of your old workplace savings plan with a rollover IRA, allowing your savings to continue growing tax-deferred. A rollover IRA is a retirement account that allows you to roll money from your former employer’s retirement plan into an IRA. You can open an IRA with a financial institution.
https://reddit.com/link/1ok3pjp/video/gm9sek60hpxf1/player
Before rolling over your 401(k), find out your 401(k) rules, compare fees and expenses, and consider any potential tax impact.
Some benefits:
- Consolidating your 401(k)s could help make it easier to manage your retirement savings.
- You won’t pay taxes on potential growth until you make withdrawals—and you can still make contributions to the account. ^(1)
- If you’re under age 59½, you can withdraw money penalty-free if you meet one of the IRS’s exceptions, such as a qualifying first-time home purchase or higher education expenses. ^(2)
- You may be able to get a broader range of investment choices than is available in an employer’s plan.
- Rolling over assets can be done by source type. This means you can roll over Roth assets independently to a Roth IRA.
But...
- Investment fees may be higher than your workplace options.
- Once you reach age 73, unless you were born in or after 1960, you’ll have to take annual required minimum distributions (RMDs) from a traditional IRA every year, even if you’re still working. If you’re actively employed and own less than 5% of the company you work for, you can generally delay taking RMDs from that company’s 401(k), 403(b), or Keogh plan until you retire.
- Federal law offers more protection for money in 401(k) plans than in IRAs. However, some states offer certain creditor protections for IRAs too.
- If you hold company stock in your workplace savings plan, consider the potential impact of net unrealized appreciation (NUA) before choosing between staying in the plan, taking the stock in kind, or rolling over the stock to an IRA or another employer’s plan. Rolling over the stock into another tax-advantaged plan will eliminate any NUA.
Option 3: Roll over the old 401(k) into your new employer’s plan
When you change jobs, you could move your old 401(k) into your new employer’s account if your plan allows. This can make it easier to manage your retirement savings in one place while still giving your money the chance to grow tax-deferred for the future.
Some benefits:
- Your money can continue to grow tax-advantaged.
- Consolidating your 401(k)s can make it easier to manage your retirement savings.
- Many plans offer lower-cost (institutionally priced) plan-specific investment options.
- Federal law provides broad protection against creditors. You may be allowed to defer RMDs even if you're still working after age 73. If you’re actively employed and own less than 5% of the company you work for, you can generally delay taking RMDs from that company's 401(k), 403(b), or Keogh plan until you retire.
- You may take penalty-free distributions from a qualified employer plan if you terminate employment after reaching age 55.
But...
- Make sure to understand your new plan’s rules.
- Consider the range of investment options available in the new plan.
- If you hold company stock in your workplace savings account, consider the potential impact of net unrealized appreciation (NUA) before making a move.
- Always opt for a direct rollover, if possible. This lets your old financial institution transfer funds directly to your new financial institution, with instructions to roll the money into your new IRA or 401(k).
Not all companies will accept a rollover from a previous employer’s plan, so check with your new employer before making any decisions.
Option 4: Cash out (and pay taxes)
You could withdraw your funds from your workplace savings account before retirement, but it will cost you in penalties and taxes. It’s wise to avoid this unless you have an immediate need for cash and are out of other options.
The consequences depend on your age and tax situation. If you withdraw from your 401(k) before age 59½, the money will generally be subject to both ordinary income taxes and a potential 10% early withdrawal penalty.
An early withdrawal penalty doesn’t apply if you stopped working for your former employer after age 55 but are not yet age 59½. This exception doesn’t apply to money rolled over to an IRA or to 401(k)s.
In summary, you’ll owe:
- Full income taxes on the distribution amount
- A 10% early withdrawal penalty if under 59½
For example: Cashing out $50,000 before age 59½ could cost $20,500 in penalties and taxes.
A quick guide when reviewing your options
Going with a rollover IRA? Here are a few things to consider...
Below are 4 common—and avoidable—pitfalls that can occur while transitioning a former employer’s retirement plan into an IRA.
- Not rolling into the right IRA
- Getting a check in your name
- Being unaware if the rollover stalls and you didn’t catch it
- Not investing your rollover money
Final thoughts
Leaving your job can be a major life event. Don’t let your 401(k) become a financial blind spot. As one of those key moments that can help shape your retirement future, whether you leave it, roll it over, or convert it, do it intentionally and with the right information.
Common terms defined
401(k): An employer-sponsored retirement plan in which you make contributions through salary deferrals (e.g., money automatically taken out of your paycheck).
IRA: An individual retirement savings option available to anyone with earned income (or whose spouse has earned income).
Traditional IRA: An individual retirement account that grows tax-deferred, with earnings taxed on withdrawal.
Roth IRA: An individual retirement account funded with after-tax dollars, with withdrawals that are tax-free in retirement.
Direct rollover: When one financial institution sends a check directly to another financial institution, with instructions to roll the money into your new IRA or 401(k).
401(k) match: When your company contributes a certain amount to your 401(k) based on how much you contribute yourself.
401(k) loan: A provision that allows you to borrow up to 50% of your account value, up to $50,000, every 12 months.
RMD: Starting at age 73, a required minimum distribution (RMD) is a specific amount of money the IRS requires you to withdraw from your tax-deferred retirement accounts each year.
NUA: A tax strategy known as net unrealized appreciation, which when applied to company stock, can help you pay lower capital gains rates on a portion of your tax-deferred assets instead of the typically higher ordinary income rates.
Be sure to consider all your available options and the applicable fees and features of each before moving your retirement assets.
Investing involves risk, including risk of loss.
^(1)By making an IRA contribution to a Rollover IRA you may be commingling qualified plan assets (i.e., 401(k), 403(b), and/or governmental 457(b) plan assets) within your rollover IRA with annual IRA contributions. If you want the option of rolling eligible assets from your IRA into another employer-sponsored retirement plan in the future, you may want to consider keeping separate IRA accounts for each retirement plan type that you are rolling over.
^(2)Certain conditions apply in order to meet the requirements of these exceptions. For a first-time home purchase, you and/or your spouse can withdraw up to $10,000 each penalty-free from your respective IRAs. Please note that while penalty-free, taxes may still apply.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
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Posted Oct 30, 2025, 4:03 PM UTC · locked