Investments & Accounts

What Should I Do With My 401(k) When I Retire or Change Jobs?

When you leave an employer, the money in your retirement plan generally doesn't have to move — but you usually have a choice about whether it should.

There are typically four paths: leave the balance in the old plan, move it to a new employer's plan, roll it into an IRA, or take it in cash. Each has meaningful consequences, and none of them is automatically correct.

Rolling to an IRA is not automatically the right answer. Some employer plans offer low-cost investment options and protections that may be worth keeping. The goal is to compare the options rather than default to one.

This may be worth discussing if…

You are retiring or have recently changed jobs
You have balances scattered across several old employer plans
You are unsure what your current plan charges or what it offers
You hold employer stock inside your retirement plan
You are between the ages where early withdrawal rules may differ
You've received paperwork asking you to make a decision by a deadline

The four options, side by side

Leave it in the old plan

Often the simplest choice, and sometimes the best one.

May offer institutional-priced investment options not available retail
Employer plans generally carry strong creditor protections
No action required, but the account is easy to lose track of over time
Limited investment menu and less flexibility on withdrawals or beneficiary planning

Roll to a new employer's plan

Keeps everything in one workplace account if you're continuing to work.

Consolidation without leaving the employer-plan environment
May allow continued plan loans, if the plan permits them
Depends entirely on whether the new plan accepts rollovers and what it offers
Investment menu is again limited to that plan's lineup

Roll to an IRA

Broadest flexibility, but not automatically cheaper or better.

Wide range of investment choices and more control over withdrawals
Easier to coordinate with the rest of your plan and your beneficiaries
Costs may be higher or lower than the plan — this must be compared, not assumed
Creditor protection rules differ from employer plans and vary by state

Take it in cash

A cash distribution can create significant tax consequences and forego continued tax-deferred growth, so it should be carefully compared with the other available options.

The distribution is generally taxable as ordinary income in the year received
An additional penalty may apply depending on your age and circumstances
Mandatory withholding may apply, reducing what actually reaches you
Removes the money from tax-advantaged growth permanently

Things to consider

Both sides of the decision, laid out plainly.

Compare costs honestly

Look at the plan's total costs — investment expenses plus any administrative fees — against what the alternative would cost. Sometimes the plan wins.

Investment options matter

Some plans offer institutional share classes or stable value funds that have no direct retail equivalent. Others offer a narrow, expensive menu.

Age-related withdrawal rules differ

The rules for penalty-free access can differ between employer plans and IRAs depending on your age and when you separated from service. This is worth confirming before moving anything.

Employer stock deserves its own conversation

If you hold appreciated company stock in the plan, special tax treatment may be available — and rolling it over can forfeit that opportunity.

Consolidation has real practical value

Fewer accounts means clearer beneficiary designations, simpler required distributions, and less for your family to untangle later.

How the transfer is done matters

A direct trustee-to-trustee transfer avoids withholding and the risk of an accidental taxable distribution.

Questions to ask Rob

What does my current plan actually cost compared with the alternatives?
How would each option fit with the rest of my retirement income plan?
Do I hold company stock that deserves special consideration?
What would consolidation simplify for me and for my family?
If we move it, how should the money be invested afterward?

Questions to discuss with your tax or legal professional

Are there tax consequences to the approach we're considering?
Would special tax treatment of appreciated employer stock apply in my situation?
How do creditor protections differ between plans and IRAs in my state?
Are there withholding or reporting steps I need to handle this year?

Key takeaway

Compare before you move. Leaving the money where it is can be the right decision, and cashing out is rarely one. The strongest reason to consolidate is usually clarity and coordination, not performance.

Still have questions?

Every situation has details a general guide can't cover. A short conversation is usually the fastest way to sort out what applies to you.

Schedule a Conversation With Rob

This material is provided for general informational and educational purposes only and should not be construed as individualized investment, tax, accounting, or legal advice. Individual circumstances vary, and strategies discussed may not be appropriate for every investor. Wealthspan Investment Management, LLC does not provide legal or tax advice. Clients should consult their attorney, tax professional, and financial advisor regarding their individual circumstances. Investing involves risk, including possible loss of principal.