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After switching jobs, you might have to decide what to do with the funds in your current 401(k) plan. You could cash out early, but that route comes with possible tax penalties and fees.

Other options include leaving the money with your old employer or transferring the balance to a new 401(k) plan or IRA. We’ll explain the pros and cons of each choice and how to transfer your 401(k) to your new job if you decide it’s the best move for you.

What are 401(k) rollovers

A 401(k) plan is a tax-advantaged retirement savings account many employers offer their employees. When you change jobs, you can roll over your 401(k) savings to your new employer’s plan or into an individual retirement account (IRA).

A rollover involves transferring your retirement savings directly from one retirement account to another without taxes or penalties. This process helps you maintain the tax-deferred status of your savings, so your balance can keep growing until you retire.

What to do with your 401(k): 4 options

After landing a new job, you could leave your 401(k) with your old company if the plan administrator allows it.

Leaving your 401(k) at your previous employer might be smart if your old plan has low fees and you like the investment options. However, a drawback is that your old employer might charge you additional fees. Review your plan details if you’re concerned about potential fees.

Contact your former employer’s human resource team if you need help finding your old 401(k). This step ensures you still have access to the same plan, as employers sometimes switch 401(k) plan providers or roll old employee’s funds into an IRA on their behalf.

You can also choose from one of these options:

  • Roll over a 401(k) into your new employer’s plan. If your new job offers a 401(k) plan and you like its cost and features, you can transfer your old retirement account’s balance into it.
  • Roll over a 401(k) into an individual retirement account (IRA). If you’re not satisfied with your new employer’s plan or they don’t offer one, you could roll your 401(k) into an IRA. This option allows you to open an IRA with a brokerage firm that could offer lower fees and access to more investment choices.
  • Cash out early. You might also decide to withdraw the money after weighing the pros and cons of cashing out your 401(k). Doing so can provide you with money to cover current expenses, but you’ll pay a 10% early withdrawal fee and income taxes if you’re not at least 59 and 1/2 years old.¹

How to roll over your 401(k)

How to roll over a 401(k) into your new employer’s plan

Transferring your 401(k) to your new job’s plan can be straightforward. Just follow these simple steps:

  1. Contact the plan administrator. Contact your old plan administrator to see what steps you need to take to start the rollover process.
  2. Complete paperwork. Send over any paperwork the plan administrator requests to authorize the transfer.
  3. Request that your former plan administrator send the funds directly. Ask your old plan administrator to send the funds directly to your new 401(k) or IRA. This method is the easiest way to transfer your funds and can help you avoid penalties.¹

How to roll over your 401(k) into an IRA

If you want to transfer your 401(k) to an IRA, the process is almost idential to rolling it into a new 401(k) plan. However, one key difference is that if you want to roll over the funds to an IRA, you’ll need to open a rollover IRA first – if you don’t already have one.

Once completed, contact your old plan’s administrator to complete the necessary paperwork to transfer funds to your IRA.

60-day rollover option

You could also do a 60-day rollover, which involves withdrawing the money from your old 401(k) and transferring it into your checking or savings account. Once you’ve transferred the money, you have 60 days to deposit it into a new IRA.

This option has some drawbacks. For example, taxes are taken out of the withdrawn amount, so you have to deposit extra funds to transfer the total balance of your old 401(k). Plus, if you don’t transfer the balance within 60 days, you might have to pay an early withdrawal penalty.2,3

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Advantages of rolling over your 401(k)

Choosing to roll over your 401(k) can offer several benefits:

  • Consolidating your retirement accounts in one place. Having one account can simplify tracking and managing your investments.
  • A streamlined investment strategy. With all your funds in one place, developing your retirement investment strategy can be simpler.
  • Access to financial service offerings. Some plans offer a broader range of investment options and benefits like a free financial plan.

Disadvantages of transferring 401(k) to a new job

While transferring your 401(k) can offer advantages, there are some potential downsides to consider:

  • Loss of certain investment options. Your new 401(k) plan might not offer the same investment options as your old one.
  • Increased fees. Some plans have higher administrative costs or investment fees.
  • Delays. The transfer process can take time, temporarily affecting your investment strategy.

Is transferring your 401(k) right for you?

Deciding what to do with your old 401(k) when you change roles might take some time. Rolling it over into an IRA or new 401(k) plan with your current employer can simplify the management of your retirement accounts. If you need help choosing the best option, contact a certified financial planner or financial advisor.

It’s never too early to start planning for retirement – here’s how you can start saving for retirement in your 20s and 30s.

FAQs

Are there any fees for a 401(k) rollover?

Whether you have to pay a fee depends on your existing and new plan administrators. Some plan administrators don’t charge a processing fee for rollovers, while others do.³ Contact your current and new plan provider to see how much you might have to pay.

Is there a limit to how much you can roll over from a 401(k)?

Generally speaking, there are no limits to how much you can roll over. However, you should check for any specific rules within your new plan. Note that the IRS allows you to do one 401(k) rollover every 12 months.4,5

Are there any downsides of 401(k) rollovers?

Potential downsides include loss of investment options and possible delays in the transfer process. Plus, your new plan administrator might charge higher fees than your old one. Evaluating your current and new plan’s offerings will help you make an informed decision.

How do I find my old 401(k) account?

If you need help finding your old 401(k) account, contact your previous employer’s HR or retirement department. They can help you track down your old account and tell you what steps to take to roll it over.

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¹ Information from IRS "Retirement topics - termination of employment" as of April 12, 2024: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-termination-of-employment

² Information from IRS "Retirement topics - Exceptions to tax on early distributions" as of April 18, 2024: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-termination-of-employment

³ Information from IRS' "Rollovers of retirement plans and IRA distributions" as of April 12, 2024: https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

⁴ Information from Vanguard's "Commonly asked questions about 401(k) rollovers" as of April 12, 2024: https://investor.vanguard.com/investor-resources-education/education/401k-to-ira-rollover-rules

⁵ Information from Ameriprise Financial's "What happens to your 401(k) when you change jobs?" as of April 12, 2024: https://www.ameriprise.com/financial-goals-priorities/retirement/what-to-do-with-your-401k-plan-when-you-change-jobs

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