Changing jobs can be an exciting step forward in your career, but it also comes with a list of financial decisions to make, including what to do with your 401(k). Whether you’re moving to a new company or stepping away from a traditional job altogether, understanding your options for your old retirement account is key to keeping your long-term goals on track.
Here’s a breakdown of the choices available and how to decide what makes the most sense for your future.
Leave It With Your Former Employer
If your balance is over $5,000, most employers will allow you to leave your 401(k) where it is. This can be a simple solution, especially if the plan offers good investment options and low fees.
Pros:
- No immediate action required
- Continued tax-deferred growth
Cons:
- You can’t contribute to the account anymore
- You may forget about it or lose track of how it’s performing
- Fewer options to manage or rebalance easily
Roll It Over to Your New Employer’s Plan
If your new job offers a 401(k), rolling over your old account into the new one can help you keep things consolidated in one place.
Pros:
- Keeps your retirement savings streamlined
- May offer better investment options
- Avoids early withdrawal penalties or taxes
Cons:
- Not all employers allow rollovers
- There may be a waiting period before you can join the new plan
Roll It Into an IRA
Another common route is to roll your old 401(k) into an individual retirement account (IRA). This gives you greater flexibility and more control over your investments.
Pros:
- Wider range of investment choices
- Potential for lower fees depending on the provider
- Maintains tax-deferred status
Cons:
- You’re responsible for managing the account
- Requires a bit more financial knowledge or guidance
Cash It Out (But Be Careful)
You technically can cash out your 401(k), but this is rarely a good idea unless you absolutely need the money. You’ll likely pay a 10% early withdrawal penalty if you’re under 59½, plus income taxes on the full amount.
Pros:
- Access to immediate cash
Cons:
- Big tax hit and penalties
- You lose long-term growth potential
- Can set your retirement plans back significantly
Talk to a Financial Advisor Before You Decide
Every option comes with trade-offs, and the right decision depends on your overall financial picture, goals, and the details of your old and new retirement plans. That’s why it’s a smart move to talk to a financial advisor who can walk you through the pros and cons based on your personal situation.
If you’re looking for expert guidance, TruNorth Advisors Greenville SC offers personalized retirement planning services to help you make confident decisions during times of transition.
Conclusion
Don’t leave your 401(k) in limbo when you switch jobs. Whether you roll it over, keep it where it is, or move it into an IRA, taking action now ensures your money keeps working for your future. With a little planning—and the right advice—you can turn a job change into a financial opportunity.