Your four choices
- Leave it where it is. Many plans let you keep your account after you leave. Check what investments and withdrawal options the plan allows.
- Roll it to an IRA. An IRA usually offers more choices, and some people like keeping several old plans in one place. Costs and protections differ from your plan, so compare them.
- Move it to a new employer's plan, if you are still working and the new plan accepts it.
- Cash it out. The whole amount becomes taxable income that year, and before 59½ there can be an extra 10% penalty. This is the choice that most often causes regret.
You can also mix these. For example, some people move part of a plan and leave part where it is.
How to move money without a tax bill
Ask for a direct rollover, where the money goes straight from your plan to the new account. If a check is made out to you instead, the plan generally holds back 20% for taxes, and you have 60 days to deposit the full amount or it can count as a withdrawal.
Ages that matter
- 59½. After this age, withdrawals from IRAs and most plans no longer face the 10% early withdrawal penalty. Income tax still applies to traditional accounts.
- 55. If you leave your job in or after the year you turn 55, withdrawals from that employer's 401(k) may avoid the penalty. Money rolled into an IRA loses that exception, which is one reason to plan before you roll.
- 457 plans. Withdrawals from a governmental 457(b) after you leave the job generally have no 10% penalty at any age.
- 73 or 75. Required minimum distributions from traditional accounts begin at 73 for many of today's retirees, and at 75 for those born in 1960 or later. Missing one is costly.
Questions to ask before you move anything
- What does my current plan cost, and what would the new account cost?
- Do I own company stock in the plan? Special tax rules may apply, and a rollover can lose them.
- Will I need this money before 59½?
- Who is the beneficiary on each account today?
- How does this money fit my income plan, and which bucket does it belong in?
Some people roll part of their savings into an annuity for lifetime income. That can make sense for some and not for others. Read annuities, explained plainly.
This page is educational. It is not tax, legal or investment advice, and rules change. We check the current rules against your own situation before you decide anything.