You changed jobs. Congratulations, genuinely. New role, new team, new routine. Somewhere in the middle of all that, there's a retirement account from the old job, and for most people it just... sits there. Out of sight, out of mind.
You're not alone in that. It's probably the most common thing I hear from people who've recently made a move. The good news: you have options, and none of them require a decision today. But it does help to know what they are, because "I'll deal with it later" can quietly turn into years.
Here are the four main ones.
1. Leave it where it is
If your old employer's plan allows it (many do once your balance is over a certain amount), you can leave the money right where it is. Nothing to do, nothing changes.
The catch: you can't add to it anymore, you're limited to the plan's investment menu, and it's one more account to keep track of. Job change twice more and you're juggling three or four old accounts at three or four old employers. People lose track of these more often than you'd think.
2. Roll it into your new employer's plan
If the new job offers a 401(k) and the plan accepts rollovers, you can move the old balance into it. Everything ends up in one place, and you keep the ability to contribute and, in some cases, borrow against the combined balance.
The tradeoffs: you're limited to the new plan's investment choices and rules, and the timing and paperwork depend on both plans. Worth comparing the new plan's fees and options before assuming this is the best home for the money.
3. Roll it into an IRA
A rollover IRA puts you in the driver's seat: your choice of investments, one account that follows you from job to job, and simpler estate and beneficiary management. For a lot of people who change jobs more than once, this is where old accounts eventually land, so everything is in one place with a full view of the picture.
Things to think through first: if you have a Roth 401(k), that money belongs in a Roth IRA, not a traditional one, and mixing that up creates a tax headache. If you might do backdoor Roth conversions down the road, having pre-tax IRA money can complicate the math (the pro-rata rule). And creditor protection differs between an employer plan and an IRA. None of these are reasons not to do it. They're reasons to do it with your eyes open.
4. Cash it out
I'll be honest with you: this is the one that usually costs people the most. Money you take out before age 59½ is generally taxed as income and hit with a 10% early withdrawal penalty, with some exceptions. On top of that, the money stops working for your future. A $20,000 balance cashed out at 35 isn't just $20,000 gone after tax and penalties, it's decades of potential growth gone with it. There are rare situations where cashing out makes sense, but they're rare.
So which one is right?
It depends on your new plan's quality, your tax picture, your other accounts, and how much you value simplicity. That's not a dodge, it's genuinely different for different people, and it's exactly the kind of thing that's easier to sort out in a 15 minute conversation than in a blog post.
If you've got an old 401(k) sitting at a former employer and you're not sure where it stands, I'm happy to walk through your options with you, no pressure and no obligation. That's most of what I help people with at my practice, especially between jobs.
You can book a time here: https://oncehub.com/PAGE-44EACEDA56
I run a small boutique firm here in Los Angeles, S&D Financial Strategies, where I help business owners and professionals develop financial strategies aligned with their goals. My job is to help you buy back your time, and make your money work harder for you.
David Sonek-Delgado, Founder & Wealth Consultant, S&D Financial Strategies
Educational information only; this is not individualized investment, tax, or legal advice. Rollovers involve considerations including fees, investment options, creditor protection, and tax treatment that vary by plan and by person. Talk with your tax professional and review your plan documents before moving retirement money. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.