Switched Jobs or Retired? Options for Your 401(k)

Have you considered all your options for your 401(k)?

When you leave a job, sometimes your 401(k) stays behind. Your options may not always be clear, so we wanted to review the choices that you have to make an informed decision. The options below are a comprehensive listing and not presented in order of favor. Every person’s retirement plan and investment situation are different.

Don’t Do Anything

The first option available to you is to leave your 401(k) with the current plan. Usually, keeping your funds invested in the existing plan is an option, at least in the short-term. You may decide to do this because you like the investments that you have or you are waiting to see what your next employer may provide. Sometimes you might just forget about an orphaned retirement account or not realize you have the option to do something with your savings. If the plan balance is too low, as well, the company may cash it out whether you like it or not. This can be a taxable event.

401(k) Rollover

If you are in a situation where you moved to a new employer, your second option for your old 401(k) is to rollover into your new employer’s 401(k) plan. This allows you to consolidate your 401(k) investments in one place. Another reason to rollover your old 401(k) into your current 401(k) is if you want to work beyond the age of 72. If you are working past age 72, you can delay the Required Minimum Distribution (RMD) from your 401(k).

Rollover to an IRA

A third choice that you have is to Rollover to an IRA. This option allows you to move your 401(k) balance into a traditional IRA tax-free. IRAs provide a greater number of investment options than a 401(k). You will still have to take an RMD from your IRA at age 72, and the RMD happens regardless if you are still working. The withdrawals from the traditional IRA are taxed as taxable income in the calendar year in which it is taken. Rollovers need to be deposited within 60 days.

Rollover to a Roth IRA

In addition to a Rollover into a Traditional IRA, you could Rollover to a Roth IRA. Roth IRAs provide the same increased investment options as a Traditional IRA, but Roth IRAs do not have RMDs like a traditional IRA. A Traditional 401(k) can be rolled to a Traditional IRA, and Roth 401(k) assets can be rolled to a Roth IRA without incurring a taxable event. You can roll a Traditional 401(k) to a Roth IRA, but you will pay some tax on the conversion.

Cash Out Your 401(k)

The last option is to cash out your 401(k). This is a costly option, as your investments will no longer be tax deferred. Taxes will be paid on the full amount of the distribution. Additionally, if you are under the age of 59 ½, then the 10% early withdrawal penalty also applies. In some circumstances, if you retire after age 55 and before 59 ½, you can withdraw cash from your 401(k) without a 10% penalty.

There are numerous options for your old 401(k) retirement plan at your disposal. What you do with it is as important as how you invest the money. There are benefits and disadvantages to each option, so please contact our experts to discuss the best one for your situation.

This report does not constitute tax advice and is not specific to any individual’s personal circumstances. Please consult a tax professional before you institute any of the options presented.


This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

About the Author