Leaving a job does not mean an old 401(k) must go into an IRA. You can often keep it where it is, move it into a new employer’s plan, or roll it into an IRA. The better choice depends on the actual accounts available to you.
What are your three main choices for an old 401(k)?
Your three main choices are to keep the old 401(k), combine it with a new employer plan that accepts rollovers, or move it to an IRA. This guide compares those choices without treating any one of them as the default.
| Choice | Fees | Investment choices | Convenience | Account protections |
|---|---|---|---|---|
| Keep old 401(k) | May be low, especially in a large plan | Limited to the plan menu | Creates another account to track | Most private-sector plans receive federal ERISA protections |
| Move to new employer plan | Depends on the new plan | Limited to the new plan menu | Combines workplace savings in one place | Most private-sector plans receive federal ERISA protections |
| Roll into an IRA | Depends on the provider, investments, and advice fees | Usually a wider selection | Can combine several old accounts | Federal bankruptcy protection applies, but other creditor rules can depend on state law |
When should you keep an old 401(k)?
Keeping the old plan can be sensible when its costs are low and its investments are strong. Large plans may offer low-cost funds that are not available in a retail IRA.
The tradeoff is separation. You must keep your information current with a former employer and review an account that no longer receives contributions. The employer may also change providers or investments.
Keeping the old plan may fit when:
- Its total fees are lower than the alternatives.
- Its investment menu covers what you need.
- You value its federal plan protections.
- One more account will not make your finances harder to manage.
Include plan charges, account fees, advisory fees, and the cost of the investments you would hold.
When should you move it to a new employer’s plan?
Moving the balance to a new employer plan can make retirement savings easier to manage. You may get one statement and one investment menu for workplace savings.
First confirm that the new plan accepts incoming rollovers. Then compare it with the old plan. Consolidation is not an improvement if the new plan has higher fees or weaker investments.
The new plan may fit when:
- It accepts the type of money in your old account.
- Its fees and investment choices are at least competitive.
- You want fewer retirement accounts.
- Employer-plan protections matter to you.
Ask both plan administrators about the steps and any transfer restrictions before starting.
When should you roll an old 401(k) into an IRA?
An IRA can make sense when you want more investment choices or an easier provider. It may let you combine several old accounts at one financial institution and choose from a wider range of investments.
More choice is useful only when it helps your portfolio. It can also expose you to high-cost products or an added management fee. If you would pay for investment management, include that cost when comparing the accounts. Compare the total yearly cost, not a claim that the IRA itself has no fee.
Protections also differ. Most private employer plans receive federal protections under ERISA that do not apply to IRAs in the same way. IRAs have federal bankruptcy protection, while protection from other creditors can vary by state. If creditor protection matters in your situation, get legal advice before moving the account.
How do you move the money without an avoidable tax problem?
A direct rollover sends eligible retirement money from the old plan to the receiving plan or IRA without paying it to you first. This is usually the cleanest method because the old plan does not withhold federal income tax from the transferred amount.
If a check is paid to you, the plan generally withholds 20% for federal tax. You usually have 60 days to complete a rollover, and you would need other cash to replace the withheld amount if you want to roll over the full balance. Ask for a direct rollover and follow the receiving account’s instructions.
The bottom line
An IRA is not automatically better than an old 401(k). Compare total fees, useful investment choices, day-to-day convenience, and legal protections across all three choices before moving the money.
Santafino’s fee-only fiduciary wealth management firm can compare the accounts using their real costs and features. The CPA firm can help confirm the reporting when a rollover is completed.
FAQ
Do I have to move my 401(k) after leaving a job?
Often, no. Many plans let former employees keep money in the plan, though small balances may be moved or paid out under the plan's rules. Read the notices from the former employer before deciding.
Does rolling a 401(k) into a traditional IRA create a tax bill?
A properly completed rollover of eligible pre-tax money into a traditional IRA is generally not taxable at the time of the move. A direct rollover usually avoids mandatory withholding on money paid to you.
Can my new employer's 401(k) accept an old 401(k)?
It may, but plans are not required to accept incoming rollovers. Ask the new plan administrator what it accepts and review its fees and investments first.
