Retirement Planning

Four Options to Manage an Old 401(k)

April 6, 2017
The best choice depends on your personal circumstances.

Key Points

  • Whether you’re changing jobs or retiring makes a difference in what you consider doing with your old 401(k).
  • If you’re pleased with your employer’s plan, there may be no reason to change.
  • Choosing to roll old 401(k) assets into an IRA or your new employer's plan can provide advantages, including flexibility.
  • There are immediate tax consequences if you decide to cash out an old 401(k).

You have four options for what to do with an old 401(k) account. What’s right for you depends on whether you’re changing jobs or retiring from your career, as well as on your financial circumstances and long-term goals. Keep in mind that preserving the tax benefits of your retirement account when you leave your job may substantially improve your ability to build wealth over the long term. For any of your old 401(k) accounts, consider the steps you’ll take next. You can choose from any of the following options:


1. Leave your assets in your former employer's plan

If the plan allows, you can leave the assets in your former employer’s 401(k) plan where they can continue to benefit from any tax-advantaged growth.

Employees who leave the workforce after age 55 typically can make penalty-free withdrawals from their 401(k) accounts (income taxes still apply)—an option not permitted until age 59½ for distributions from an individual retirement account (IRA).

Also, if you’re pleased with the plan, there may be no reason to change. Find out if you must maintain a minimum balance or if there are any fees for leaving your assets in the plan and be familiar with the plan’s distribution provisions.


  • Offers familiar investment options.
  • Maintains your investments’ tax-advantaged status.
  • Generally allows for penalty-free withdrawals if you leave your job in the year that you turn age 55 or older (although distributions are still subject to income taxes).
  • May provide access to investments that might not be available elsewhere.


  • May have a minimum balance requirement of $5,000 to remain in the plan.1
  • Subject to plan withdrawal provisions.
  • May have limited investment options.

2. Roll your assets into your new employer's plan

If you’re changing jobs, you can roll your old 401(k) account assets into your new employer’s plan (if permitted). This option maintains the account’s tax-advantaged status. If you are still saving for retirement, it may be convenient to consolidate your old 401(k) assets into the new plan. As with your old plan, your new 401(k) typically will allow penalty-free withdrawals if you leave the workforce after you’ve reached age 55 (income taxes still apply). Find out if your new plan accepts rollovers and if there is a waiting period to move the money.


  • Maintains your plan account's tax-advantaged status.
  • May permit loans.1
  • Generally allows for penalty-free withdrawals if you leave your job in the year you turn age 55 or older (although distributions are still subject to income taxes).
  • May provide access to investments that may not be available elsewhere.
  • If you are still working at age 70½, you do not have to take required minimum distributions from your current employer's plan.


  • Limits investment options to those in the new plan.
  • Limits your access to withdrawals.1
  • May involve a waiting period prior to moving assets from a former employer's plan.1
  • Generally, rollover contributions to a new plan (if permitted) can be withdrawn at any time and do not have to meet a permissible distribution event. Taxes and penalties may apply.

3. Roll your assets into an IRA

You can also roll over your old 401(k) into an IRA if you’re looking for a wider variety of retirement investment options, the potential for tax-advantaged growth, and greater flexibility over access to your savings (although income taxes may apply, in addition to early withdrawal penalties, if you are under age 59½).2 Also, consolidating multiple retirement accounts into an IRA can make it easier to manage your retirement assets. Review the differences in investment options and fees between an IRA and your old/new employers’ 401(k) plans.


  • Maintains your plan account's tax-advantaged status.
  • Often offers access to a wider range of investment options (versus keeping the assets in an employer-sponsored plan).
  • Penalty-free withdrawals after age 59½ and under limited circumstances, such as unreimbursed medical expenses, disability, education expenses, and first-time home purchases.
  • Allows you to consolidate multiple accounts into a single IRA, providing a clear view and control of your overall financial picture and reducing the number of statements you have to manage.


  • Does not offer loan provisions.
  • Generally, you may not make penalty-free withdrawals until age 59½.
  • There may be negative tax consequences of rolling over significantly appreciated employer stock to an IRA.

4. Cash out your account

Another option that’s available, but may have significant financial consequences, is to cash out your old 401(k). Not only are those funds considered taxable income and subject to an immediate tax withholding, but you also may be subject to a 10% early withdrawal tax penalty if you cash out before age 59½.2 In addition, the amounts you withdraw will lose the potential for tax-deferred growth unless you do a direct rollover within 60 days. What’s most important is to recognize the cost of not having these assets for your future retirement needs.


  • Provides immediate access to your retirement plan assets.


  • Removes the potential for continued tax-deferred growth of your assets.
  • Mandatory 20% withholding on the distribution. You may be liable for a greater amount when you file your taxes, if your income tax rate is higher than 20%.
  • May be subject to a 10% early withdrawal penalty if you are under age 59½. (Some exceptions apply.)

The decision about how best to proceed depends on your personal circumstances. If at all possible, choose an option that allows you to continue to benefit from your savings’ tax-advantaged status and preserve and increase the growth potential of your wealth.

There are other important factors to consider when deciding between an employer-sponsored plan and IRA—examples include fees and expenses, available services, protection from creditors, and special tax considerations for employer stock. Please consider consulting with a tax advisor.

1Depends on employer plan provisions.

2Certain exceptions apply.

Next Steps: