What to Do With an Old 401(k)
The plain answer
Section titled “The plain answer”When you leave a job, you usually have four choices for the money in your old 401(k):
- Leave it in the old employer’s plan.
- Roll it into a new employer’s plan.
- Roll it into an IRA.
- Cash it out.
For many people, keeping the money in a retirement account is the better starting point. Cashing out is usually costly because the distribution may create income taxes, an additional tax for an early distribution, and the loss of future tax-advantaged growth.
How it actually works
Section titled “How it actually works”Leave it in the old plan
Section titled “Leave it in the old plan”This can be reasonable when the plan has low fees, strong investment choices, or features you value. You cannot make new payroll contributions after leaving the employer, and managing accounts across former employers can become cumbersome. Some plans may require smaller balances to be moved out, so check the plan’s rules.
Roll it into a new employer’s plan
Section titled “Roll it into a new employer’s plan”If the new plan accepts incoming rollovers, combining accounts can make them easier to manage. Compare the new plan’s fees, investments, withdrawal rules, and services before moving the money.
Roll it into an IRA
Section titled “Roll it into an IRA”An IRA may offer a wider investment selection and more control. It also puts the responsibility for choosing a provider, investments, and fees on you. Review how an IRA works before deciding.
Cash it out
Section titled “Cash it out”The amount you receive may be taxable income. If you are below the applicable retirement age, an additional tax may also apply unless an exception fits. The withdrawal also removes money from retirement savings, so the long-term cost can exceed the immediate tax bill.
What this means for you
Section titled “What this means for you”Start by collecting the old plan’s fee disclosure, investment list, and distribution rules. Then compare those details with your new workplace plan and an IRA from a provider you would consider.
If you decide to move the account, ask for a direct rollover so the money goes from the old plan to the receiving account without being paid to you. See 401(k) Rollovers for the process and the risks of receiving the money yourself.
Before moving employer stock or taking a distribution near retirement, consider getting tax guidance. Special tax rules can make those cases more complicated.
Common mistakes
Section titled “Common mistakes”- Cashing out because the balance looks small without estimating taxes and lost growth
- Choosing an IRA without comparing its fees and investments with both workplace plans
- Assuming every new employer plan accepts rollovers
- Requesting a check payable to yourself when a direct rollover is available
- Forgetting to confirm that the rollover arrived and was invested
Related pages
Section titled “Related pages”Educational content, not personalized financial, tax, or legal advice. No affiliate relationships. Figures are for tax year 2026 and change annually.Read the full disclaimer.