At a glance
After leaving a job, you may be able to leave money in the former employer’s plan, roll it into a new employer plan, roll it into an IRA, or take a distribution. The right choice depends on fees, investments, services, withdrawal rules, creditor protection, taxes, age, and your overall retirement plan.
Four common options
1. Leave the money in the former employer’s plan
This may preserve access to institutional investment options, plan-level services, and certain federal creditor protections. However, you can no longer contribute, and the plan may offer limited investments or less personalized service.
2. Roll it into a new employer’s plan
Consolidation can simplify recordkeeping and may preserve the ability to delay certain required distributions while still employed, depending on the plan and ownership rules. The new plan must accept rollovers, and its fees and investment menu should be reviewed first.
3. Roll it into an IRA
An IRA may offer a wider investment selection and easier coordination with other accounts. Compare advisory costs, fund expenses, services, withdrawal flexibility, creditor protection under applicable law, and whether moving money affects strategies such as backdoor Roth contributions.
4. Take a distribution
A cash distribution is generally taxable to the extent it contains pretax money and may be subject to an additional tax if you are under the applicable age and no exception applies. Withholding can also apply. This option can permanently reduce retirement savings.
Questions to compare before deciding
- What are the total plan, fund, advisory, and administrative fees?
- Which investment options and professional services are available?
- Do you need penalty exceptions associated with a workplace plan?
- How important are creditor protections?
- Will you need loans, installment withdrawals, or flexible beneficiary options?
- Could IRA aggregation affect future Roth strategies?
- Are there company-stock tax considerations?
- Will you need access before age 59½?
Direct rollover versus receiving the money
A direct rollover generally sends eligible retirement money directly from the old plan to another eligible plan or IRA. This usually avoids mandatory withholding that can apply when an eligible rollover distribution is paid to you. If you receive the funds, deadlines, withholding, and replacement of withheld amounts can become important.
Common mistakes
- Moving the account only because someone recommends a product.
- Comparing investment performance without comparing total costs and risk.
- Taking a check without understanding withholding and deadlines.
- Ignoring age-based penalty exceptions.
- Failing to review beneficiaries after the rollover.
- Assuming every new employer plan accepts incoming rollovers.
Frequently asked questions
Do I have to move my old 401(k)?
Not necessarily. Many plans allow former employees to leave the account in place, although plan rules and minimum-balance requirements vary.
Is an IRA always better?
No. An IRA may offer more flexibility, but an employer plan may have lower institutional pricing, different creditor protection, useful withdrawal rules, or other advantages.
Is a rollover taxable?
A properly completed direct rollover from pretax plan money to a traditional IRA or eligible employer plan is generally not currently taxable. Moving pretax money to Roth is generally a taxable conversion.
Official sources
- IRS: Rollovers of retirement plan and IRA distributions
- IRS: Retirement plans FAQs regarding IRAs
- U.S. Department of Labor: retirement-plan participant resources