facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search brokercheck brokercheck
%POST_TITLE% Thumbnail

What to Do With Your Old 401(k) When You Switch Jobs

401(k) Rollover IRA

Switching jobs? If you have a 401(k) plan it's a good time to review your financial decisions and choices linked to it — a process that's much easier if you understand the options.

There are three workable options for continuing the growth of retirement funds. You can leave it where it is, roll it over to your new employer’s plan or create an individual account of your own. A fourth option — cashing out the account — involves early withdrawal penalties, tax consequences and loss of any long-term growth. Figuring out which route offers more advantages for continued investment is important to your long-term retirement success.


If you read the plan's agreement, you know that some employer plans accept rollovers, while others may not. Plan sponsors maintain the membership guidelines. In some cases, the former employer’s plan allows the sponsor to cash-out the account when you end employment. Withdrawals could trigger income taxes and a 10 percent penalty.

Before you start, gather account documents (statements) and the plan contacts together. When you signed up for the plan, you may have selected both a pre-tax 401(k) and a Roth 401(k) option These are two separate accounts.

  • 401(k) contributions are not taxed—subject to taxes and penalties for early withdrawal
  • Roth contributions are taxed—withdrawals are not taxed

It’s a good idea to talk with a financial advisor before starting the process. First, you want to choose the right type of retirement account and secondly avoid paying taxes or penalties for choosing the wrong plan. If you roll the pre-tax 401(k) into a Roth, prepare to pay taxes on the full amount.

Taking Action

A financial advisor can help in making a good decision as you continue saving. He or she will review the previous employer’s plan and weigh the benefits of the new employer’s retirement plans. More importantly, their involvement will make sure the necessary steps are taken to move your funds without repercussions to you. 

If you leave the money in the previous employer’s plan, it’s a good idea to have an advisor review the plan’s progress. It may be time to shift or increase the contributions. If you decide to move the funds, the previous plan’s administrator can send the check to a designated contact. Your advisor can coordinate the transaction.

  • 401(k) plans are traditionally pre-selected group funds.
  • IRA allows for diversity with stocks, mutual fund, bonds and Exchange Trade Funds (ETF).

Financial Precautions

Depending on the length of the previous employment, you need to check the vesting schedules. Vesting schedules are tied to the employer’s contributions (employer’s match). The schedules determine the amount and date when the employer’s contributions are legally yours. Your own contributions are fully vested from day one.

Age is another factor. Sometimes, if you switch jobs and turn 55 in the same year, you may withdraw funds from the 401(k) without penalty. Rolling the funds into another 401(k) or IRA imposes a higher age limit of 59 years and six months to avoid withdrawal penalties, depending on the plan. Once again, talking with a financial advisor is the best advice when making financial decisions and avoiding costly mistakes.

Your new employer may have a waiting period before you can rollover the funds. Your advisor may suggest that you open an investment account to continue contributions during the waiting period. You have 60 days from withdrawal to avoid any penalties.

Opening another account allows you to take advantage of the tax deduction until you make your final decision. Keeping the investment growth active could be more beneficial for you in the long run.

You’ve saved for retirement using an employer’s plan. A financial advisor will help you understand the regulations of moving the retirement funds. They will also help navigate any future changes.


  • This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Faithful Steward Wealth Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
  • Some information in this blog post is gleaned from third party sources, and while believed to be reliable, is not independently verified. The statements contained herein are based upon the opinions of Faithful Steward Wealth Advisors.
  • This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.