What Should You Do With an Old 401(k)?
Leaving an employer can create an important decision about your retirement savings. Depending on the rules of your former and current employer plans, you may be able to leave the account where it is, roll it into a new employer’s plan, move it to an IRA, convert eligible assets to a Roth IRA, or take a distribution. Each option has different considerations involving taxes, fees, investment choices, withdrawal rules, creditor protection, and your broader retirement strategy.
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Leave it in your old plan
Keep the account in your former employer’s plan if the plan allows it. This may preserve access to institutional investment options, plan-specific features, and certain withdrawal or creditor-protection rules.
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Convert to a Roth IRA
Move eligible pre-tax assets to a Roth IRA and generally include the converted amount in taxable income for that year. Future qualified Roth withdrawals may be tax-free, so the timing and size of a conversion should be evaluated carefully.
Your Main Old 401(k) Rollover Options
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Roll into a new employer plan
Consolidate the old account into your current employer’s 401(k), 403(b), or other eligible plan if that plan accepts incoming rollovers. This may simplify account management while keeping assets inside an employer-sponsored retirement plan.
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Take a taxable distribution
Receive the funds directly rather than rolling them over. The distribution may be subject to income tax, mandatory withholding, and an additional early-distribution tax unless an exception applies.
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Roll into an IRA
Move eligible assets to a Traditional IRA through a direct rollover. An IRA may offer broader investment choices and more control, but fees, services, withdrawal rules, and creditor protections should be compared carefully.
When a rollover may make sense
- You want to consolidate multiple retirement accounts for easier management.
- You want access to investment options or professional management not available in the old plan.
- The total fees and expenses in the IRA or new plan compare favorably with the old plan.
- You want more flexibility with beneficiary designations or withdrawal planning.
- You are considering a coordinated Roth conversion strategy.
- The old employer plan no longer provides features that are important to you.
When leaving the account in the old plan may make sense
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The old plan offers low-cost institutional investments or other attractive plan features.
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You separated from that employer during or after the year you turned 55 and may need penalty-exception access before age 59½.
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The plan’s federal protections from creditors are important to your situation.
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You hold appreciated employer stock that should be reviewed for possible net unrealized appreciation treatment before a rollover.
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You have an outstanding plan loan or other plan-specific provisions that need to be evaluated.
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Moving the account would not meaningfully improve your investment choices, costs, or overall plan.
Key Factors to Compare
Taxes
Fees & Expenses
Investment Choices
Compare the immediate and long-term tax consequences of each option, including whether any portion of the account contains Roth or after-tax money.
Compare plan expenses, fund costs, advisory fees, account fees, and the services included with each option.
Review the quality, cost, and variety of investments available in the old plan, a new employer plan, and an IRA.
Withdrawal Rules
Creditor Protection
Employer Stock
Consider differences in access before age 59½, the age-55 separation exception, required minimum distributions, and plan-specific restrictions.
Employer retirement plans generally receive federal protections under ERISA. IRA protections can differ depending on federal bankruptcy law and applicable state law.
Review potential net unrealized appreciation treatment before moving appreciated employer stock out of the plan.
Frequently Asked Questions
Is there a deadline to roll over my 401(k)?
There is generally no single deadline requiring you to move an old 401(k) immediately after leaving an employer. However, the former employer’s plan rules and your account balance may affect whether the money can remain in the plan. If a distribution is paid directly to you, you generally have 60 days to complete an eligible rollover.
What is the difference between direct and indirect rollovers?
With a direct rollover, the money is sent directly to the receiving IRA or retirement plan, or the check is made payable to that receiving account. With an indirect rollover, the distribution is paid to you. Employer-plan distributions paid to you are generally subject to 20% federal withholding, and you normally have 60 days to complete the rollover using the full eligible amount.
Can I roll over only a portion of my account?
A rollover can sometimes involve all or part of an eligible distribution, but availability depends on the former plan’s distribution rules and the receiving account’s requirements. Confirm both sides of the transaction before requesting a partial rollover.
Not Sure Which 401(k) Option Fits Your Situation?
A rollover decision should be evaluated alongside your retirement goals, investment strategy, taxes, income needs, and other financial accounts. DR Wealth can help you compare the available options and understand the tradeoffs before you make a move.
Investment advisory services are offered through Savvy Advisors, Inc., an SEC-registered investment advisor. DR Wealth and Dustin Roberts do not provide tax or legal advice. Consult your tax or legal professional regarding your individual circumstances.
About the Author
Dustin Roberts is the founder of DR Wealth and a wealth advisor with Savvy Advisors. He helps individuals, families, educators, veterans, and business owners coordinate retirement accounts, investments, lending decisions, insurance, and long-term financial planning.
Written by Dustin Roberts
Founder, DR Wealth
Wealth Advisor | Mortgage Loan Originator
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