Should you rollover an old 401(k)?
Leaving an employer can create an important decision about your retirement assets. You may be able to keep your money in your former employer's 401(k), move it to a new employer's retirement plan, roll it into an IRA, or take a distribution. The right choice depends on your circumstances—not simply on which option offers the most investment choices.
What can you do with a 401(k) after leaving a job?
Depending on your former employer's plan and your individual circumstances, there are generally several alternatives to consider.
Keep your former employer's 401(k)
Some plans allow former employees to leave retirement assets in the existing plan. This may be attractive when the plan offers competitive expenses, institutional investment options, or features you want to retain.
Move it to a new employer's plan
If your new employer's retirement plan accepts incoming rollovers, consolidating retirement assets there may simplify account management while keeping the assets inside an employer-sponsored retirement plan.
Roll the assets into an IRA
An IRA may provide access to a broader investment universe and additional flexibility in portfolio construction. Costs, services, protections, investments, and withdrawal considerations should still be compared carefully with your existing plan.
Take a distribution
Taking retirement assets in cash can create income-tax consequences and, depending on your age and circumstances, an additional tax on early distributions. Taking a distribution is different from completing a qualifying rollover.
Why might someone consider rolling a 401(k) into an IRA?
An IRA can provide additional flexibility, but whether those benefits are valuable depends on the investor and the quality of the existing 401(k). Potential considerations include:
- Access to a broader range of stocks, bonds, ETFs, and other investments
- Greater flexibility in building a customized investment portfolio
- Ability to consolidate multiple retirement accounts
- Potentially simpler portfolio monitoring and rebalancing
- Ability to coordinate retirement assets with other investment accounts
- Access to professional investment management if desired
Why might keeping an old 401(k) make more sense?
A rollover can also mean giving up valuable benefits. Before moving an account, investors should understand what is available through the existing employer plan.
- Potentially lower institutional investment expenses
- Federal ERISA protections that may apply to the employer-sponsored plan
- Institutional or plan-specific investments not available in an IRA
- Loan features that may be available under certain employer plans
- Age-55 early-distribution considerations for qualifying former employees
- Potential differences in creditor protection
- Plan-specific features or benefits that would be lost after a rollover
Direct rollover vs. receiving the money yourself
Direct rollover
A direct rollover generally moves eligible retirement assets directly from an employer-sponsored retirement plan to another eligible retirement plan or IRA. The participant does not take possession of the money during the transfer.
Receiving the distribution
Having the distribution paid directly to you can create withholding, tax, and timing considerations. Federal rollover deadlines may also apply if you later decide to move those assets into another eligible retirement account.