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4 things you can do with 401(k) savings when leaving your job or nearing retirement
Don’t forget about that 401(k) you had with your previous employer. Here are four options for what to do with it, from keeping it where it is to rolling it into an IRA.
If you’ve been part of the surge in job turnover in recent years, you may find yourself with a 401(k) tied to a former employer.
Why? That retirement savings plan was “employer-sponsored,” meaning your employer offered it as a workplace benefit (and maybe even contributed to it) and your contributions came out of your paycheck. Now that you’ve parted ways, the savings are yours,1 but you can no longer add money to the account because it remains tied to your former employer.
Fortunately, you have a few options for that 401(k) when you change jobs or approach retirement.
Let’s cover the basics of each option.
From tax implications to investment opportunities, each option for your 401(k) has nuances to consider. Get details on each choice (PDF).
1. Roll your savings into an IRA.
Transfer your money into an individual retirement account (IRA).
- Your savings can continue to be invested, with similar tax advantages. (Rolling a traditional 401(k) into a traditional IRA delays taxation. You also have the option to roll it into a Roth IRA and pay taxes immediately. This may be beneficial if you have less than $6,500 in the account—the annual limit for a Roth IRA—and expect that your tax bracket in retirement will be higher than your current rate.)
- You may have access to a wider range of investment options than what is usually available in 401(k) plans, including options for ongoing money management.
- You can consolidate all of your retirement savings in one place by rolling in any savings from past employers.
- You can keep contributing money to the account up to annual limits. Learn more about annual contribution limits.
- Loans aren’t allowed, but you may be able to withdraw money before age 59½ under certain circumstances.2
You can personalize an IRA as much or as little as you’d like.
2. Keep your money where it is.
Do nothing. If you meet the minimum balance—$5,000 through 2023 and $7,000 starting in 2024—you can leave your savings invested in your former employer’s retirement plan, if available.
- Your savings stay invested, with the same tax advantages.
- You continue with the plan’s investment options and any changes to the investment lineup that they may make.
- You can’t make additional contributions.
- Your past employer may decide to make changes to the plan that impact your account by offering more or fewer services for you.
- If you have an outstanding loan in your employer’s retirement plan, in most circumstances you’ll be required to pay it back within a short time following your separation from service. You won’t be able to take a loan from your savings if you’re no longer employed with the company.2
3. Move your money to your new employer’s plan.
If you have a new employer offering a retirement plan, you may be able to transfer your previous savings into it. Contact your HR department for help getting started.
- Your savings stay invested with the same tax advantages.
- You might be able to roll in savings from other retirement plans.
- You can keep contributing money from your new paycheck to your new plan.
- The investment options will depend on what the new plan offers.
- You may be able to take out a plan loan or withdraw money before retirement under certain circumstances.2
4. Cash out your account balance.
You also have the option to take your savings as a lump-sum cash distribution.
- You get immediate access to your money, but you may lose up to 30% of it to taxes and penalties.
- You’ll miss out on any future growth or earnings.
- The receipt of this money is considered income and may move you to a higher tax bracket, which means you might have to pay more in taxes.
For many Americans, employer-sponsored retirement savings make up the largest sum of money they have. And making an informed decision is in your long-term best interest. Here’s a quiz to help. But also know that you don’t have to go it alone—we're here to help at each step along the way.
1Did your 401(k) have a vesting schedule? Check before you withdraw any funds. Employees may not be able to keep employer matches and employer contributions that had not vested at the time of their termination or resignation.
2While loans are not allowed, you may be able to access money from a traditional IRA or 401(k) by taking a taxable distribution, although penalties will apply if you’re under age 59½. IRS penalty-free withdrawals may become available at age 59½. Some exemptions apply, such as expenses for certain medical care and first-time homebuyers; review IRS exceptions to taxes on early distributions for details.
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