What should I do with my 401(k) when I leave a job?
Retirement
You have four options: leave it, roll it into your new employer's plan, roll it into an IRA, or cash it out. For most people, rolling to an IRA or new 401(k) is best, cashing out is almost always the worst choice.
The four options, ranked
1) Roll to an IRA, maximum investment flexibility and lower fees. 2) Roll to your new 401(k), simpler and preserves backdoor Roth eligibility. 3) Leave it where it is, fine if the plan is great. 4) Cash out, you'll owe income tax + 10% penalty before 59½, and lose decades of compounding.
When the new 401(k) is the better roll target
If you do backdoor Roth IRAs (or plan to), keeping pre-tax money out of your IRA preserves the strategy. New plans also typically allow loans and offer creditor protection that IRAs don't always match.
When the IRA is the better roll target
When the old or new plan has limited fund options, high fees, or poor service. An IRA gives you the entire universe of low-cost index funds and ETFs.
What people often get wrong
- Cashing out and paying tax + 10% penalty unnecessarily
- Rolling to an IRA without considering backdoor Roth implications
- Forgetting about the account entirely (the 'forgotten 401(k)' epidemic costs Americans an estimated $1.65 trillion in lost retirement assets)
What to think about next
- Decide between rollover-to-IRA vs rollover-to-new-401(k) based on your backdoor Roth strategy.
- Request a direct rollover (trustee-to-trustee), never have the check made out to you.
- If pre-2007 employment, check if you have unclaimed 401(k) balances at the National Registry.
When to consider working with a CFP®
Working with a CFP® can help when these decisions feel intertwined, taxes, investments, cash flow, and life goals tend to move together, and a planning relationship can offer structure, prioritization, and accountability over time.
Frequently Asked Questions
What if I have employer stock in the plan?
Look up Net Unrealized Appreciation (NUA) before rolling, you may save significantly on taxes by separating the stock from the rest of the account.
Talk to a CFP® who works with high earners.
Connect with a CFP® to help you navigate this decision and build a comprehensive financial strategy.
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