What To Do With Your 401(k) When You Leave a Job

401(k) statement printout

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You've landed your dream job, or you've been laid off, and you're ready to say goodbye to your current employer. But before you go, you have some decisions to make about your 401(k).

While there may be some guidance from human resources, is generally up to you to decide what you should do with your retirement savings when you change jobs. So, what happens to your 401k plan when you leave a job?

Key Takeaways

  • When you leave an employer, you have several options with your 401(k).
  • If you leave the money where it is or move it into another 401(k) or a rollover IRA, you won't face any penalties or taxes.
  • A direct distribution from your 401(k) before age 59 1/2 will bring a 10% penalty, and you will have to pay income taxes on the money.
  • If you have less than $1,000 in the account, your employer could cut you a direct check without notifying you.

401(k) Plan Options When You Leave a Job

If you have an employer-sponsored 401(k), you will likely be faced with four options when you leave your job.

  • Stay in the old employer’s plan
  • Move the money to a new employer’s plan
  • Move the money to a self-directed retirement account (known as a rollover IRA)
  • Cash out

Before deciding, here are a few things to consider with each option.

Leave the Money in Your Former Employer’s 401(k)

Many companies will let former employees stay invested in their 401(k) plan indefinitely if there is at least $5,000 in the account. However, if there is less than $5,000 in your account, your old company can cash you out of the account (or roll the money over to a new plan).

In any case, unless your former employer’s plan has outstanding investment options or unique benefits, leaving your 401(k) behind rarely makes sense. According to the Bureau of Labor Statistics, the average U.S. worker changes jobs 12 times throughout a career. That's a lot of 401(k)s to leave behind.


If you left behind a plan at every job, you could wind up with a 401(k) graveyard filled with neglected investments by the end of your career. You may want to consider combining your retirement accounts instead.

To be sure, if you have been through a layoff and are not sure of your next move, keeping your 401(k) funds with a former employer may make sense in the short-term.

Move the Money to Your New Employer’s 401(k)

If you are starting a new job that offers a 401(k) plan, you may have the option to bring your old plan over and consolidate it with the new one without taking a tax hit. If the new plan has great investment options, this might be a great move. You also keep your retirement funds growing in one place, which makes it easier to manage over time.

Plus, if your new employer offers 401(k) plan loans, there is a more substantial balance to borrow against.

Roll the Money Into an Individual Retirement Account (IRA)

Another option is to open what is known as a rollover IRA, a retirement account that exists to consolidate other retirement accounts in one place. It’s like a basket into which you can throw all of your old 401(k)s. Money moved into a rollover IRA remains tax-deferred for retirement, and you can invest it in any way you choose.


You can only complete one IRA rollover in a one-year period, per IRS regulations.

Within a rollover IRA, savers have access to countless investment options, including stocks, bonds, mutual funds, and real estate investment trusts. If that sounds overwhelming, you could instead opt for a lifecycle fund that chooses investments for you according to your target retirement date.

There are two ways to rollover your 401(k) into your IRA: direct and indirect.

A direct rollover is the easier of the two; your old plan sends a check to your new plan. With an indirect rollover, your plan administrator sends you a check, and you have 60 days to move the funds into your IRA. However, you won't receive the entire balance of your account. The administrator is required to withhold 20% for taxes, which may be refunded to you when you file your next income tax return, depending on your tax situation. If you want to maintain the tax-deferred status of that withheld amount, you will have to make up the funds from another source.

Cash Out of the Plan

If there is one option to generally avoid, it is pulling your 401(k) money out altogether. Even if it seems like easy money or gift at a time when cash is sorely needed, you will likely regret it later. That’s because if you take a distribution before you reach the retirement age of 59 ½, you will owe federal income tax on the money, plus any applicable state and local taxes.

On top of that, you will likely also be charged a 10% penalty fee for early withdrawal. (Although there are some cases in which the penalty fee may be waived, such as severe financial hardship.) In all, it’s a high price to pay, and it jeopardizes your long-term retirement savings.

A Catch: Employer Distribution

If you don't make a decision, your old employer may make it for you.

If your account balance is less than $5,000, your employer does not need your consent before distributing the funds from the plan. If there is more than $1,000 in your plan—and you don’t opt for another type of distribution—your plan administrator is required to move the funds into an IRA.

If your 401(k) balance is less than $1,000, your employer could give you a lump-sum distribution without your requesting it. If you do get such an unintended distribution, you should act quickly to roll the money over into a new employer's plan or a rollover IRA.

The Bottom Line

There is no one right 401(k) move for everyone, but by exploring your options, you can determine what is right for you. Consider your choices carefully before deciding and make sure you understand the fees and costs associated with each option. Talk to human resources representatives and plan administrators at your old job and your new job. You may also want to discuss options with financial advisor.

Frequently Asked Questions (FAQs)

How to find an old 401(k) account?

If you've lost track of an old 401(k), you have several options to find it: contact your old employer, search databases like the National Registry of Unclaimed Retirement Benefits, or search lost property databases.

How to cash out 401(k) from old job?

First, unless you are in a dire financial situation, avoid cashing out an old 401(k). You'll pay taxes and a 10% penalty on the funds, and you'll lose earning potential. The process of cashing out an old 401(k) is simple: contact your plan administrator or access your account online, and request the funds. Details will vary among plan administrators.

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  1. Fidelity. “Considerations for an Old 401(k)."

  2. Bureau of Labor Statistics. “Number of Jobs, Labor Market Experience, and Earnings Growth: Results From a National Longitudinal Survey.”

  3. IRS. “Topic No. 413 Rollovers From Retirement Plans.”

  4. IRS. "Rollovers of Retirement Plan and IRA Distributions."

  5. IRS. “401(k) Resource Guide—Plan Participants—General Distribution Rules.”

  6. Fidelity. "Request a Check."

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