What Happens To Your Retirement Account When You Leave Your Employer?

William Miller |

When changing jobs, everything you need to take with you usually can be packed neatly into a couple of boxes - everything except your employer-sponsored retirement plan. The decision as to what to do with your retirement plan may not be clear. Luckily, anyone who leaves a company has options with what to do with their retirement plan. Below are four common options for you to consider, and the best option for you will depend on your situation:

Keep the money with your former employer’s 401k:

First step is comparing the plan fees and investment options with your new employer’s plan. Once you have determined your current plan offers the best of both, then it might be best to keep the money where it is. You will still have access to your account for making investment decisions and withdrawing funds. One thing to consider is whether you want to monitor two different employer-sponsored plans.

Roll your money into your new employer’s retirement plan:

Again, it is important to compare cost and what investment options are available. If your new employer’s plan offers an improvement in both (including a broader range of investment choices), you may choose to transfer the account into the new plan. Even if the new plan does not completely measure up to your old plan, there is an advantage of consolidating your plans into one for easier monitoring and management of your investments.

Execute a rollover into an Individual Retirement Account (IRA):

If you decide it is best not to keep your retirement account at your former employer or to roll it into you new employer retirement plan, a Rollover IRA may be a good option for you. A Rollover IRA can be established through a bank, a brokerage firm, or a custodian. The one advantage a Rollover IRA has over an employer-sponsored plan is the range of investment options that are available.

A Rollover IRA is also preferable for people who have more than one 401k plan from former employers because you will be able to consolidate all the accounts into one.

*When establishing a Rollover IRA, it is important to maintain it as a separate account from any other Traditional IRA you might have established, if you plan on making any future contributions.

Cash out your 401k plan by withdrawing all your money (not recommended):

Unless there is some urgent need for the funds, there is no reason why you should cash out your 401k plan. If you withdrawal the funds in your account before age 59 ½ you will pay ordinary income taxes as well as a 10% penalty (certain exceptions do exist for the penalty).

If you are planning on rolling the money over to another qualified plan, it is recommended that you do so with a direct transfer (you do not receive the money if it goes directly to the new account). Although you have 60 days to roll the funds into a new plan, it is not worth the risk of missing the deadline or some administrative glitch.


With all the consideration, it might be best to reach out to a financial advisor or an accountant to get guidance and to help with you review your options!


*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax, legal, or investment advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their accountant, financial planner, and counsel. Neither the information presented, nor any opinion expressed constitutes a representation by WM Wealth Planning as a specific recommendation to the purchase or sale of any securities/investment. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by WM Wealth Planning for educational purposes.*