What should you do with your old 401(k) when you change jobs?

Congratulations. You’ve worked hard to save money in your 401(k) or 403(b). But, if you’re like most Americans, you’re likely to change jobs (and employers) multiple times during your career. So, what should you do with your old 401(k) when you get a new job?

There are a few different options you can take with your 401(k) when you switch jobs. Read more to learn which might be right for you. 


In this article: 

Should I roll over my 401(k) or leave it in my previous employer’s plan?

401(k) rollover option 1: Keep your savings with your previous employer’s plan

If your previous employer’s 401(k) allows you to maintain your account and you are happy with the plan’s investment options, you can leave it. This might be the most convenient choice, but you should still evaluate your options. Each year, American workers manage to lose track of billions of dollars in old retirement savings accounts, so you should make sure to track your account regularly, review your investments as part of your overall portfolio and keep the beneficiaries up to date.

Some things to think about if you’re considering keeping your money in your previous employer’s plan:

  • The amount of money in your account. If you have less than $5,000 in your former employer’s 401(k) plan, you may be required to transfer your money out. If you have less than $1,000 in the account, your former employer will likely cut you a check for the appropriate amount. If that happens, you will need to deposit the check into your new employer's 401(k) plan or into an IRA within 60 days of receiving it to avoid paying taxes on the money and, if you’re under 59 ½, a 10% early-withdrawal penalty.
  • Employer stock. If your account includes publicly traded stock in your former company, and that stock has grown significantly in value, the tax breaks you received from the in-kind distributions of the stock will be lost if you take the option to roll over your account into your new employer’s 401(k) plan or into an IRA.
  • Vesting. If your previous employer contributes matching funds to your 401(k), the money typically vests over time. If you're not fully vested when you leave the employer, you'll get to keep only a portion of the match–or none at all. Make sure to talk to your plan administrator to understand your company’s vesting schedule.
  • Fees. A 401(k) account is a convenient way to put away money for retirement, but it also comes with maintenance and transaction fees that can have a significant impact on your long-term returns. As you evaluate options, make sure you understand exactly how much you’re paying in fees.

401(k) rollover option 2: Transfer the money from your old 401(k) plan into your new employer’s plan

Moving your old 401(k) after changing jobs and into your new employer’s qualified retirement plan is also an option. The new plan may have lower fees or investment options that better support your financial goals. Rolling over your old 401(k) into your new company’s plan can also make it easier to track your retirement savings, since you’ll have everything in one place. It’s worthwhile to talk with an Ameriprise advisor who will compare the investments and features of both plans.

Some things to think about if you’re considering rolling over a 401(k) into a new employer’s plan:

  • Direct rollovers. A direct 401(k) rollover gives you the option to transfer funds from your old plan directly into your new employer’s 401(k) plan without incurring taxes or penalties. You can then work with your new employer’s plan administrator to select how to allocate your savings into the new investment options.
  • Transfer rules. Failure to follow 401(k) transfer rules may result in extra penalties and taxes. For example, if you don’t do a direct rollover and receive the funds from your previous employer’s plan in the form of a check, a mandatory 20% withholding will apply. What’s more, if you don’t deposit the check within 60 days of receiving it and are under the age of 59 ½, you’ll get hit with a 10% early-withdrawal penalty on top of any taxes.
  • Loans. Some employer retirement plans allow you to borrow money from your 401(k). If you roll over your old plan into your new plan, you may have a larger balance to borrow against. You will have to pay yourself back, with interest, over time, and the loans are usually only an option for active employees. You should also understand the long-term implications of taking out a loan against your account, so carefully weigh your options and discuss the pros and cons with your advisor.

Should I roll my retirement savings to a traditional or Roth IRA?

401(k) rollover option 3: Roll over your old 401(k) into an individual retirement account (IRA)

Still another option is to roll over your old 401(k) into an IRA. The primary benefit of an IRA rollover is having access to a wider range of investment options, since you’ll be in control of your retirement savings rather than a participant in an employer’s plan. Depending on what you invest in, a rollover can also save you money from management and administrative fees, costs that can eat into investment returns over time. If you decide to roll over an old 401(k) into an IRA, you will have several options, each of which has different tax implications.

  • Traditional IRA rollover. If you roll over your old 401(k) account to a traditional IRA, no taxes will be due when you move the money, and any new earnings will accumulate tax deferred. You'll only pay taxes when you take withdrawals.
  • Roth conversion. If you qualify, you can roll over all or part of your old 401(k) directly to a Roth IRA. Converting a traditional 401(k) to a Roth IRA is similar to rolling over your 401(k) to a traditional IRA, with one extra step: You will have to pay taxes on the money you convert. That’s because Roth retirement accounts are funded with after-tax dollars, while traditional 401(k)s are funded with pre-tax dollars. Once you make the conversion, any earnings that accumulate will be eligible for tax-free withdrawal, as long as your Roth IRA has been open at least five years and you are at least 59 ½ years old.
  • Roll over your Roth 401(k) to Roth IRA. Unlike a traditional 401(k), which is funded with pretax dollars, a Roth 401(k) is funded with after-tax money. When you roll over a Roth 401(k) to a Roth IRA, no taxes are due when the money is moved, and any new earnings accumulate tax free if certain conditions are met. Earnings are eligible for tax-free withdrawal once the Roth IRA has been open at least five years and you reach age 59 ½.

Some additional considerations to think about if you’re considering rolling over a 401(k) into an IRA:

  • Contribution limits don’t apply to rollovers. Although IRAs typically have an annual contribution limit of $6,500, there is no limit on funds that come from a 401(k) rollover. Even if you have a large amount of money in your 401(k), you can roll over all of it into a traditional IRA.
  • Taxes. When you do a Roth conversion, the amount that's converted is included as taxable income on your tax return. That means you could end up owing a lot of money to the IRS for your conversion year.
  • Required minimum distributions (RMD). If you’re still working at a certain age, you’ll be required to start taking minimum distributions from your IRA, and the penalty for not taking those payments is steep. By comparison, a Roth IRA has no required minimum distributions during the account owner's lifetime. (The RMD age is 73 for individuals who turn 72 after 2022. Individuals who turned 72 prior to 2023 are already subject to RMDs. In 2033, the RMD age will increase to 75).

401(k) Pros

401(k) Cons

  • Offer protection from creditors under federal law, and funds cannot be seized in bankruptcy proceedings
  • Depending on the plan, you may be able to borrow money from your account
  • Required minimum distributions don’t begin until you retire
  • Usually offer fewer investment options
  • Less control over your savings (your employer selects the investments you choose from)
  • Not all plans offer a Roth option
  • Can sometimes involve high management and administrative fees


IRA Pros

IRA Cons

  • Usually offer a wider variety of investment options
  • More control over your money
  • Option to choose between Roth IRA and traditional IRA
  • No required minimum distributions for Roth IRAs
  • Rollovers from 401(k)s are protected in bankruptcy, though protection from other types of creditors varies by circumstances and state
  • Cannot borrow money from IRA accounts
  • Traditional IRAs require you to take minimum distributions once you reach your RMD age
  • In most circumstances, you must be 59 ½ to avoid the premature distribution penalties

Is cashing out my 401(k) when I change jobs a good idea?

Option 4: Cash out your old 401(k)

Another option when you’re unsure what to do with an old 401(k) is to cash out, which does exactly what you would expect — provides cash. But there are many implications to consider. The cash you withdraw is considered income, and you may incur local, state and federal taxes by doing so.  You will lose the benefit of giving your account’s investments time to grow, and you may need to work longer to make up the difference. What’s more, if you leave your employer prior to the year you turn 55 and are younger than 59 ½, you will be required to pay a 10% early withdrawal penalty on top of any taxes on the money.

How we can help

No matter your situation, we can help provide you with the information you need so you can select the appropriate retirement plan options for you.