This lesson is general education about U.S. personal finance, not financial, tax or investment advice. Tax rules and limits change every year; check IRS.gov or a qualified professional for your situation.
What you’ll learn
- You can usually leave the money, move it to a new employer’s plan, roll it into an IRA or cash it out.
- A direct rollover moves the money without tax withholding.
- Cashing out before 59½ usually means income tax plus a 10% additional tax.
- The Labor Department’s Retirement Savings Lost and Found database helps you find old plans.
When you change jobs, your vested 401(k) balance stays yours. What you do with it next affects your taxes and how easy your savings are to manage.
The four options
| Option | Good to know |
|---|---|
| Leave it in the old plan | Often allowed if the balance is large enough; check the plan’s fees and investment choices |
| Move it to your new employer’s plan | Keeps everything in one place, if the new plan accepts rollovers |
| Roll it into an IRA | Usually the widest choice of investments |
| Cash it out | Taxed as income, usually plus a 10% additional tax before age 59½ |
Direct versus indirect rollovers
- Direct rollover: the old plan sends the money straight to the new plan or IRA. Nothing is withheld and nothing is taxed.
- Indirect rollover: the plan pays you, withholding 20% for federal tax. You then have 60 days to deposit the full amount, including the 20% that was withheld, to avoid tax on it.
Watch out. With an indirect rollover of a $10,000 balance, you’d receive $8,000. To roll over the full $10,000 within 60 days, you’d need to find the other $2,000 yourself; whatever isn’t rolled over is treated as a taxable withdrawal.
Why cashing out costs so much
Suppose you’re 30 and cash out $10,000. It’s added to your income for the year and taxed at your regular rate, and the 10% additional tax adds another $1,000. You also lose decades of potential growth, which our lesson on compound growth puts into numbers.
Finding old accounts
People lose track of 401(k)s after moves and job changes. Look for old statements and emails, contact former employers’ HR departments, and search the Labor Department’s Retirement Savings Lost and Found database, which helps people find retirement plans from past employers.
Once you’ve decided, keep your contact details up to date with whichever plan or IRA holds the money. If you’re opening an IRA, see traditional or Roth? first.
Common questions
Can my old employer force my money out of the plan?
Plans can move small balances out after you leave. Depending on the plan’s rules, balances up to $7,000 may be rolled into an IRA in your name, and very small balances may be paid out by check.
What happens to a Roth 401(k) balance?
It can be rolled into a Roth IRA or into a new employer’s Roth 401(k), keeping its Roth tax treatment.
I left a job at 55 or older. Does the 10% additional tax apply?
Withdrawals from the plan of the employer you left in or after the year you turned 55 are generally exempt from the 10% additional tax, though income tax still applies.