When you change jobs or retire, your old 401(k) doesn’t have to stay where it is — and in many cases it shouldn’t. You generally have four options, and choosing the wrong one can trigger unexpected taxes and penalties.
Your four main options
- Leave it in your former employer’s plan. Simple, but you lose the ability to add to it and may have limited investment choices.
- Roll it into your new employer’s 401(k). Keeps things consolidated if the new plan is a good one.
- Roll it into an IRA. Often gives you the widest investment options and more control.
- Cash it out. Usually the costliest choice — taxes plus a possible 10% early-withdrawal penalty if you’re under 59½.
Watch out for the withholding trap
If you take a direct payout instead of a trustee-to-trustee rollover, your plan may withhold 20% for taxes — and you could owe more at filing time. A direct rollover avoids this and keeps your retirement savings intact and tax-deferred.
Consolidation can simplify your plan
If you’ve changed jobs several times, you may have multiple old accounts scattered around. Consolidating them can make your retirement picture easier to manage and your investment strategy easier to coordinate.
This article is for general educational purposes and is not personalized financial advice. Before moving retirement funds, talk with Alliance Advisors Wealth Management for a free review of your options.