facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search
%POST_TITLE% Thumbnail

What to Do With Your Old 401(k)s

If you're changing jobs and have a 401(k) plan, you generally have three workable options for continuing the growth of your retirement funds: 1) leave it where it is; 2) roll it into your new employer’s retirement plan; 3) roll it into your own individual retirement account. There is a fourth option — cashing out the account — but this leads to early withdrawal penalties, tax implications and loss of long-term growth. Figuring out which route offers more advantages for continued investment is your first step.


Before you start, gather account statements and the plan contacts together. When you signed up for the plan, you may have selected both a 401(k) and a Roth IRA. These are two separate accounts.

  • 401(k) contributions are not taxed—subject to taxes and penalties for early withdrawal
  • Roth contributions are taxed—withdrawals are not taxed

It’s a good idea to talk with a financial adviser before starting the process. You will avoid paying taxes or penalties by choosing the right plan. For example, if you roll your 401(k) into a Roth, you'll be hit with taxes on the full amount.

Execute Planning

A financial adviser can help in making a good decision as you continue saving. He or she will review the previous employer’s plan and weigh the benefits of the new employer’s retirement plans. More importantly, their involvement will make sure the necessary steps are taken to move your funds without triggering problems for you. 

If you leave the money in the previous employer’s plan, it’s a good idea to have an adviser review the plan’s options and make changes to your holdings if warranted. If you decide to move the funds, the previous plan’s administrator can send the check to a designated contact. Your adviser can coordinate the transaction.

  • 401(k) plans are traditionally pre-selected group funds.
  • IRA allows for diversity with stocks, mutual fund, bonds and Exchange Trade Funds (ETF).

Financial Precautions

Depending on the length of your previous employment, vesting schedules might apply. Vesting schedules are tied to the employer’s contributions (employer’s match). The schedules determine the amount and date when the employer’s contributions are legally yours.  For example, vesting could be 20% per year for 5 years, meaning it will take 5 years of employment before you own all of your employer's contributions. Vesting schedules do not apply to your contributions, which are always yours.

It's important to determine when you might need to spend some of this money. Sometimes, if you switch jobs in the same year you turn 55, you may withdraw funds from the 401(k) without penalty. Choosing to roll the funds into another 401(k) or IRA usually means you're stuck with a higher age limit of 59 1/2 to avoid withdrawal penalties. 

 You also might be able to take advantage of a special option if you own company stock your plan.  If the stock has a low “basis” (original amount paid for the stock), then a "Net Unrealized Appreciation" (NUA) strategy may be your best solution.  With an NUA strategy, you take a distribution of the stock and pay tax only on the basis amount.  When the stock is eventually sold, the difference between the basis and the sales price - which is the NUA – is taxed at favorable capital gains tax rates rather than ordinary income tax rates.