What to do with an old 401(k): Rollover options

In the excitement of accepting a new job offer, you might not spend a lot of time thinking about what to do with your retirement savings. However, failing to evaluate your 401(k) rollover options can be a costly mistake.

While it may be tempting to postpone the decision or cash out an old workplace account, knowing the best way to handle an old 401(k) can help you avoid jeopardizing your retirement savings plan or losing your hard-earned money.

What happens to your 401(k) when you leave a job?

When you leave a job, your 401(k) doesn't automatically move with you. You'll need to decide what to do with the savings you've built.

You'll typically have several options for what to do with an old 401(k). You may be able to leave your savings in your former employer's plan, roll the funds into a new employer's retirement plan, move the money into an individual retirement account, or IRA, or take a lump-sum distribution. Each option comes with different considerations, including investment choices, fees, access to funds and potential tax implications.

Here's how to evaluate your options, decide what makes sense for your financial goals and find any old 401(k) accounts you may have lost track of.

Leave the 401(k) where it is

The simplest option is to leave your retirement money in your former employer's 401(k) plan—if the plan allows it.

If your vested balance is above $7,000, you can generally choose to leave your funds in the plan. If your balance is lower, your options may be more limited.

• If your balance is between $1,000 and $7,000 and you don't take action, your former employer may automatically roll your funds into a Safe Harbor IRA.
• Your employer may cash out the account and send you a check if you have less than $1,000, although mandatory income tax withholding may apply.

The drawbacks of keeping your 401(k) in an old plan

While your investments continue to grow if you keep your 401(k) where it is, there are some downsides to consider.

• As a former employee, you may face higher account management fees.
• In most cases, you won't be able to continue contributing to the account and may lose your ability to borrow against your 401(k).
• Having your retirement funds spread across multiple accounts can make it difficult to effectively manage your risk exposure.
• If you change jobs frequently, you could easily lose track of multiple old 401(k)s over time.

Before deciding to leave your savings in a former employer's plan, compare the account's fees, investment options and features against your other 401(k) rollover options to determine what best supports your long-term retirement goals.

Transfer the funds to a new 401(k)

If you're starting a new job, consider transferring the funds from an old 401(k) into your new employer's plan. Most 401(k) plans allow for transfers from other plans, so with a little paperwork you can move your retirement savings to your new workplace account.

Consolidating accounts means fewer statements to sift through and potentially lower administrative costs. You may also find it easier to track your saving progress if your retirement funds are in a single account. Keeping them consolidated also ensures you'll have a bigger balance to borrow against if you choose to take a loan against your 401(k) in the future.

Before initiating a transfer, make sure your funds are fully vested. You should also compare the fees between both plans to ensure you're not paying more in the new account.

How to transfer your 401(k) to a new employer

To transfer a 401(k) to a new employer, start by confirming that your new plan accepts rollovers from other retirement accounts. Your new plan provider may require you to complete rollover paperwork and request a direct rollover from your former employer's plan administrator. In a direct rollover, your funds will move directly between accounts without you taking possession of the money, which helps you avoid taxes and penalties.

Roll over your 401(k) into an IRA

For more flexibility and opportunities for personalization, consider rolling your old 401(k) into an IRA.

A 401(k) rollover to IRA may be an attractive option for several reasons.

• IRAs are known for giving investors a wider array of choices, from stocks and bonds to mutual funds and exchange-traded funds.
• You'll be able to choose your IRA investments, giving you the freedom to build a portfolio that supports your retirement vision.
• Some expenses—such as buying your first home or paying for college—may qualify for penalty-free IRA withdrawals rules.
• If you opt for a Roth IRA, you won't pay taxes on investment growth or a qualified withdrawal. You'll also be exempt from taking required minimum distributions once you reach retirement.

What's the difference between a direct and indirect rollover?

If you choose to do a 401(k) rollover to IRA, you may have the choice between a direct and indirect rollover. Generally speaking, a direct rollover—where your 401(k) plan administrator transfers funds straight to your new IRA custodian—is the safest approach.

If you decide to do an indirect rollover, you'll receive a check for the account balance, minus a 20% withholding for income tax purposes. You'll be responsible for redepositing your funds within 60 days, including making up the difference of the missing 20%. If you meet this requirement, the 20% withholding will be credited back to you when you file your income tax return. However, if you fail to deposit the funds into an IRA within 60 days, you'll be responsible for income taxes and a 10% early-withdrawal penalty.

Take a lump-sum distribution

Cashing out your 401(k) may sometimes make sense if you're facing a true financial emergency and have exhausted all other options. But in most cases, taking an early withdrawal may end up doing more harm than good.

A withdrawal today doesn't just reduce your current balance—it also reduces decades of potential investment growth. For example, withdrawing $10,000 from your 401(k) in your 20s may not seem like a major setback at the time. However, this same $10,000 could potentially grow to $150,000 or more by age 65 if it remained invested—assuming a 7% average annual return, which is roughly in line with the stock market's historical long-term average. And this is before accounting for the taxes and potential 10% early-withdrawal penalty many workers younger than age 59 1/2 may owe on the distribution.

It's also important to consider the tax implications. Even if the withdrawal seems manageable up front, the final tax bill may be significantly larger once you account for federal taxes, state taxes and early-withdrawal penalties. Depending on the size of the distribution, cashing out your 401(k) could also push you into a higher tax bracket or affect your eligibility for certain tax breaks or income-based benefits.

How to find an old 401(k) account

As you're deciding what to do with your existing 401(k), it's also worth revisiting any accounts from past jobs that you may have forgotten about. Lost or forgotten retirement accounts are more common than you might think. In fact, an estimated $2.1 trillion in retirement savings has been left behind in old 401(k) plans, according to a 2025 analysis by Capitalize.

The good news is your money isn't gone—even if you've lost track of the account. Here's how to find an old 401(k).

• Check old paperwork. Comb through your old paper and digital documents to see if you can find the name of the plan's administrator or your account information. Some helpful resources can include monthly or quarterly statements, previous tax returns or forms, and old emails from your plan administrator or employer.
• Contact your former employer. If you can't locate plan information, try reaching out to your previous employer's HR or accounting department.
• Search a national database. If you're unable to contact your former employer, you can try searching for your plan on the National Registry of Unclaimed Retirement Benefits or the Employee Benefits Security Administration Abandoned Plan Search.
• Contact the plan administrator. If you know the name of the plan's administrator but can't find your account information, call them. They should be able to locate your account using your Social Security number or other personal information.
• Search your state's unclaimed property database. If your account was closed out due to a low balance, the funds may have been turned over to your state. Search your state's unclaimed property site to see if anything is listed under your name.

Once you find your old 401(k), consider consolidating it into your current employer's plan or an IRA to make it easier to manage and keep your retirement strategy on track.

The bottom line

There's no one-size-fits-all answer for what to do with an old 401(k), but cashing out should be the last resort for most individuals. If you value simplicity, transferring the funds to your new employer's plan is worth considering. However, if you want access to more investment options and guidance for retirement planning, an IRA rollover may be a smart move.

Whatever you do, don't lose track of your retirement nest egg—even if part of it is sitting in an old employer's plan. These savings will play a critical role in your financial future, so make sure they're working hard for you.