Rollover Options: What to Do with an Old 401(k)
Changing jobs often means leaving behind more than coworkers—it also leaves behind your retirement plan. If you’ve switched employers, you may have one or more old 401(k) accounts sitting idle. Deciding what to do with them is an important part of keeping your retirement strategy streamlined and efficient.
Option 1: Leave It with Your Former Employer
Most companies allow you to leave your 401(k) where it is if your balance exceeds $5,000. This can be convenient, especially if the plan offers low fees and strong investment choices. However, you’ll lose the ability to make new contributions, and managing multiple accounts can make long-term planning more complicated.
Option 2: Roll It into Your New Employer’s Plan
If your new job offers a 401(k), consider rolling the old balance into the new one. Consolidation simplifies tracking and ensures all your savings stay under one umbrella. You’ll also maintain the same tax-deferred status, avoiding penalties or immediate taxation.
Option 3: Roll It into an IRA
Rolling over into an Individual Retirement Account (IRA) gives you greater flexibility and investment options—stocks, bonds, ETFs, and more. IRAs can also have lower fees and allow easier access to professional management. Just make sure you use a direct rollover to avoid withholding taxes.
Example:
A professional who rolled her $120,000 401(k) into a traditional IRA gained access to index funds with lower expense ratios, saving hundreds annually in fees.
Option 4: Cash It Out (With Caution)
While tempting, cashing out your 401(k) before age 59½ triggers a 10% early withdrawal penalty plus ordinary income taxes. This can wipe out 30% or more of the balance. Only consider this option for extreme financial hardship or if you plan to reinvest quickly.
Final Guidance
The best choice depends on your current job benefits, investment options, and long-term strategy. In most cases, rolling into an IRA or new employer plan preserves tax advantages and simplifies management. Before deciding, consult a financial advisor to compare fees, fund performance, and accessibility. Your retirement savings deserve active stewardship—not neglect.