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Retirement

Leaving a Job? Understand Your 401(k) Options

By · Updated · 3 min read

After leaving a job, you may be able to keep retirement money in the old plan, move it to an accepting employer plan, or roll it into an IRA. Taking a cash distribution is different and can create tax costs. Compare the available choices before requesting a payment.

Find out which choices are actually available

Ask the old plan whether the balance can remain and whether any minimum-balance rules apply. If you have a new employer plan, ask whether it accepts rollovers and which types it can receive.

An IRA may provide different investment choices and fees. That does not automatically make it better than an employer plan. Services, withdrawal rules, creditor protections, and special circumstances can differ, so compare the actual accounts rather than the labels.

Find out which choices are actually available: comparison
Possible choiceQuestion to resolve
Keep the old planCan the balance stay, and what fees apply?
Move to a new employer planWill it accept this type of rollover?
Roll to an IRAWhat costs, investments, and rules change?
Take cashWhat taxes and possible additional tax would result?

Sources: IRS: Rollovers of retirement plan and IRA distributions · IRS: Retirement topics — termination of employment

Understand the direct-rollover route

For an eligible distribution, a direct rollover sends money to the receiving retirement plan or IRA instead of paying it to you personally. The receiving account and tax character still matter: moving pre-tax funds to a Roth account generally involves a taxable conversion.

A check delivered to you can still be part of a direct rollover if it is payable to the receiving plan or IRA. Follow both providers’ written instructions; do not decide how to deposit it based only on the envelope arriving at your home.

Sources: IRS: Rollovers of retirement plan and IRA distributions

See why receiving the money can complicate matters

An eligible employer-plan rollover distribution paid to you is generally subject to 20% withholding. Completing an indirect rollover generally requires action within 60 days, subject to specific rules and exceptions. IRA distributions have different withholding rules.

Suppose a fully taxable $20,000 eligible 401(k) distribution is paid to you. With $4,000 withheld, you receive $16,000. To roll over the full $20,000 within the applicable period, you would generally need to supply the withheld $4,000 from other funds.

Sources: IRS: Rollovers of retirement plan and IRA distributions

Keep a record of the whole transfer

Before moving money, identify whether the balance includes pre-tax funds, Roth funds, after-tax contributions, employer stock, or an outstanding plan loan. These details can change the process and tax consequences.

Keep statements, transfer instructions, confirmations, and tax forms. After the transfer arrives, check how it is held. Money transferred into a cash position will not automatically follow your previous investment allocation.

  1. Confirm the available choices and tax character.
  2. Compare costs and account rules.
  3. Get written transfer instructions from both providers.
  4. Verify receipt, investments, and tax reporting.

Sources: IRS: Retirement topics — termination of employment

Calculators for this guide

Try it with your own numbers401(k) Match CalculatorFree 401(k) match calculator. Enter your pay, contribution and match formula to see the yearly match, any match left unclaimed and the rate for all of it.

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Sources and further reading

Examples are illustrative and focus on U.S. personal finance. This guide is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.

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