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Chances are high that you will switch employers several times during your career. Changing employers may affect your salary trajectory but it can also impact your retirement. Why? Because you will need to decide what to do with your 401(k).

For the sake of your retirement, you’ve worked hard to build your 401(k) savings, paycheck after paycheck, year after year. Now you want to protect and grow these savings.

Is it better to roll over to your new employer’s plan or keep your 401(k) in your old employer’s plan? What about rolling over to an IRA offered by a bank? The fees and investment choices offered by each of these ultimately can affect your nest egg. What if you're tempted to take money out?

Your decision may be driven in part by the reason you left your job and your financial circumstances. Let’s explore the first steps you need to take around your 401(k) when you're leaving your job and the pros and cons of the primary options you have.

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401(k) considerations before you take action

Before you take any action with your 401(k) as you’re preparing to leave your job, there are housekeeping tasks you must complete.

• Net balance: Determine how much of the overall 401(k) balance is yours if your company made matching contributions. The 401(k) plan’s web portal usually has the most up-to-date balance.
  
  While the amount you contributed from your paycheck is yours, matching contributions may have a vesting period where they become yours based on years of service. Unvested portions are likely forfeited when you leave the company. Also, any 401(k) loan you’ve taken will affect your balance (see last bullet below).
• Plan information: Make sure you have the login and all the important contact information for your account. You will need to contact the 401(k) plan administrator if you plan to move money out of your 401(k). Also, retain any plan documents, like the Summary Plan Description, which explains the rules and options for your 401(k). Note that digital versions may be on your 401(k) plan’s web portal.
• Forced distributions: If you have less than $1,000, your soon to be ex-employer is allowed to distribute it to you, and it’s generally subject to a 20% federal tax withholding. If the balance is between $1,000 and $5,000, your previous employer may deposit the money into an IRA in your name if you don’t roll it over to another account.Ìý
• Loans: If you took a loan out using your 401(k), check with your employer before you leave to determine when you have to repay your loan. It's possible that full repayment is due soon after your last day. If you can’t repay the loan, the loan will be treated as a distribution, and you’ll owe any applicable taxes and perhaps a 10% penalty if you're under age 59½.

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Four options for your 401(k) when leaving your job

There are four main options for your 401(K) when you depart from your employer.

1.ÌýKeep it with the 401(k) plan of your previous employer

Check with your employer to confirm you have the option of keeping your account with their plan.

Pros:

• The plan may have better investment options and lower fees than your new employer’s 401(k) plan.
• Distributions from 401(k)s can be made as early as age 55 without penalty.
• Typically, 401(k)s have better protection against lawsuits or bankruptcy.
• If you roll over appreciated company stock to a taxable account, Net Unrealized Appreciation allows you to pay income tax on the original cost basis of the stock when you distribute it from your 401(k), which could create significant tax savings.
• If you’re still employed after age 72, there are no required minimum distributions.
• There are no tax impacts.

Cons:

• The plan may have less desirable investment options and higher fees than your new employer’s 401(k) plan.
• You're not likely allowed to make further contributions.
• You will need to monitor the account on your own and ensure the allocation and investments remain aligned with your goals.
• The investments may overlap with the investments of your retirement account with your new employer’s plan, so your accounts may be more concentrated in a certain asset class that can create greater investment risk.

2.ÌýMove money into your new employer’s plan

Pros:

• There's no tax impact with a direct rollover if done correctly (more on rollovers later). Contact your old plan administrator and new plan administrator for specific instructions (also confirm with the new plan that funds were received).
• You can avoid the headache of monitoring accounts at previous employers.

Cons:

• The new plan’s investment options may not align, as well, with your goals and/or may have higher fees. Check your old and new plan documents to compare investment choices and fees.
• Depending on your new and old plan’s rollover process, a rollover can be task-heavy.

3.ÌýRollover into an IRA

Pros:

• You may have more investment choices and lower fees than your previous employer’s plan.
• You may enjoy greater payout flexibility and potential estate planning advantages.
• You can continue to contribute, but there are annual contribution limits ($7,000 in 2025, $8,000 for those aged 50 and over) that are lower than that of a 401(k).
• There’s no tax impact with a direct rollover, if done correctly. IRAs are not subject to minimum withholding.
• IRAs allow pooling of RMDs.
• If you’re taking a career break or lost your job, and if you don’t like your previous employer’s 401(k) plan, an IRA provides an alternative.

Cons:

• Because you’re no longer participating in your company’s 401(k) plan, you can’t take advantage of any employer’s contribution match you may have previously had, so you lose out on the growth potential of matching funds.
• By choosing to roll over, you may incur additional costs such as investment advisory fees or brokerage fees.

4.ÌýWithdraw money in cash
Pros:

• You get your money immediately, but it could likely be the costliest choice for both your present and future financial circumstances and we strongly advise against it.

Cons:

• If you take out money from your 401(k) account before age 59 1/2, you must pay a 10% early withdrawal penalty, in addition to income tax, on the withdrawal. However, if you’re over age 55 and lose your job, you can withdraw money from your 401(k) account at your previous employer without penalty (though income tax rates apply).
• It's potentially the costliest choice, as depending on your age and circumstances, this can result in taxes and penalties, plus lost growth potential.

Of course, this list of pros and cons is not exhaustive, and there may be very specific details for each 401(k) plan or IRA that should be carefully considered. An advisor can help you determine the pros and cons that relate to your situation so you can make an informed decision.

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Direct and indirect 401(k) rollovers

If you decide to do a rollover from your old employer’s plan to your new employer’s plan or an IRA, contact your new plan’s administrator for their specific rollover instructions and forms.

You likely will have a choice between a direct rollover and an indirect rollover. We recommend a direct rollover as there should be no tax impacts if done correctly.

In a direct rollover, your old plan administrator can electronically transfer the 401(k) funds directly to the new plan or IRA. You also can get a check sent to you, but it needs to be made payable to the new plan (or the IRA account). If you receive the check, just know that you have to send the check directly to the new plan administrator yourself. Ìý

In an indirect rollover, the check is made payable to you. It’s critical to remember that you only have 60 days to deposit money with the new 401(k) plan; otherwise, you could face a 10% early withdrawal penalty as well as additional income taxes. With this option, the old plan generally will subject the withdrawal to a 20% federal tax withholding.

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Circumstances that affect your decision

If you lose your job or if you’re taking a career break, then keeping your 401(k) at your previous employer or an IRA rollover may be your two best options. Again, we don’t recommend cashing out your 401(k). The money will not be able to benefit from potential market growth, which is critical to achieving your retirement goals. Moreover, if you’re not yet 59 1/2, the non-qualified distribution would be subject to the taxes and penalties previously mentioned.

Any major change to your retirement savings should be considered within the full context of your financial circumstances. It’s difficult to achieve a full 360-degree view of your finances on your own as we’re all subject to blind spots. Consider talking with a financial advisor to help give your retirement savings the protection and growth potential it deserves when you leave your job.