Whether you’re working for a new employer or retired, you have good options for managing your retirement account at your former employer. Although many people leave their account at their former employer because it requires no action, you should review each option and decide which fits you best. The guidance here generally applies to the 401(k) (the most common employer retirement plan) as well as other common plans including 401(a), 403(b), 457 and TSP plans.
Each type of plan and the features offered by your employer’s specific plan vary, so review your situation before deciding.
To help you decide which option is best for you, download our free flowchart
“Should I Roll Over My Dormant 401(k)?”
You have four options for your old 401(k):
Option 1. Leave the money in your former employer’s plan
In most cases, you can leave money in your former employer’s plan.
Add more money – You can’t add money after you’ve left the company and your former employer won’t contribute money either.
Investment options – Although 401(k) plans offer an average of only 13 equity funds, some plans have options like annuities, insurance products, brokerage investments or reduced-cost institutional mutual funds that may interest you.
Additional services – Some plans offer resources like educational materials, financial planning tools, access to a financial advisor, and more. Your access to these may be limited once you leave the company.
Penalty-free distributions – You can withdraw money without penalty if you leave your job at age 55 or older.
Required minimum distributions – You must generally take distributions from your plan beginning at age 73.
Option 2. Move the money to your new employer’s plan
If you work for a new employer and their plan allows it, you can generally move money from your former employer’s plan into the new plan.
Add more money – For 2023, you can add up to $22,500 ($30,000 if you’re 50 or older) to your new plan. You can also receive contributions from your employer.
Investment options – Although 401(k) plans offer an average of only 13 equity funds, some plans have options like annuities, insurance products, brokerage investments or reduced-cost institutional mutual funds that may interest you.
Additional services – Some plans offer resources like educational materials, financial planning tools, access to a financial advisor, and more.
Penalty-free distributions – You can withdraw money without penalty if you leave your job
at age 55 or older.
Delay distributions – You can generally delay taking Required Minimum Distributions until after age 73 if you’re still working for the company.
Fewer accounts to manage – By combining accounts, you’ll have fewer accounts to manage.
Option 3. Move the money to an IRA
For many reasons (you don’t have a new 401(k) plan; you don’t like the investment options in your new 401(k) plan; you don’t want to pay the administrative fees in your 401(k) plan; you want more investment options; etc), the freedom of investing in your own IRA may be a good option.
Add more money – You can add up to $6,500 ($7,500 if you’re age 50 or older) to your IRA.
Broader investment choices – With seemingly unlimited investment choices in an IRA, you can nearly always find better, less expensive investments than those available in your employer’s plan. While most 401(k) plans are invested in mutual funds, you can use better, lower cost investments in an IRA.
Lower fees – Some of the cost of maintaining an employer plan is generally paid for by participants and comes directly from your investments. You won’t pay those fees in an IRA.
Improved diversification – Since you have access to more investments, you can typically diversify your portfolio better than in an employer plan.
Distributions – You can generally withdraw money without a penalty at age 59 ½.
Required minimum distribution – You must generally take Required Minimum Distributions from a traditional IRA but not a Roth IRA beginning at age 73.
Option 4. Cash out your 401(k)
Unless you’re in extreme financial hardship, you should normally avoid this option because of the potential penalties, tax consequences and reduced investment earnings. Before choosing this option, you should carefully review your 401(k) plan, other sources of money, and your specific situation.
You can see details of your employer’s retirement plan in the Participant Fee Disclosure or Summary Plan Description (normally available from your plan website or the employer’s Human Resources department). Many plan features are not discussed here and laws governing retirement plans change often. The fees in each plan and at each IRA provider differ. Your specific situation (for example, if you own 5% or more of the company; if you took a loan from your retirement account; if your account has unvested contributions; etc) may impact your options. Federal law offers creditor protection for money in 401(k) plans and some states offer creditor protection for IRAs. In all cases, you will want to review your specific situation and use trusted resources before making a decision.