What happens to your 401(k) after leaving a job?
Your 401(k) does not disappear when you change employers. But leaving a job creates a decision: keep the account where it is, move it to a new employer's plan, roll it into an IRA, or take a distribution.
Each option can have different fees, investments, tax rules, protections, and access to your money.
Leaving the company does not mean you have to move your 401(k) immediately.
In many cases, you can leave your vested retirement assets in your former employer's plan while you evaluate your alternatives.
Your own 401(k) contributions and earnings on those contributions are generally fully vested. Employer contributions may be subject to the plan's vesting schedule, so leaving before becoming fully vested can affect how much of those employer contributions you keep.
What changes when you leave your employer?
Contributions stop
Payroll contributions to the former employer's 401(k) generally stop when employment ends.
Your invested balance remains invested
If the account remains in the plan, its value can continue to rise or fall with the investments you own.
Vesting can matter
Your own contributions are generally yours, but some employer contributions may not be fully vested when employment ends.
You gain a rollover decision
Depending on the plan, you may be able to keep the account, move it to another employer plan, roll it into an IRA, or receive a distribution.
What can you do with an old 401(k)?
The four choices are not economically identical.
| Option | Investment Choice | Consolidation | Employer Plan Features | Immediate Tax? |
|---|---|---|---|---|
| Keep old 401(k) | Plan menu | No | Generally retained | Generally no |
| New employer plan | New plan menu | Yes | New plan's features | Generally no on eligible rollover |
| IRA rollover | Generally broader | Yes | No | Generally no on eligible rollover |
| Cash distribution | N/A | No | Given up | Potentially |
General comparison only. Plan provisions and individual circumstances can differ.
A direct rollover is very different from having the money paid to you.
How the transfer is executed can affect withholding and the amount of work required to preserve the tax-deferred status of the account.
Old Plan → New Plan or IRA
The plan sends the eligible rollover distribution directly to the receiving retirement plan or IRA.
Old Plan → You → New Account
If an eligible rollover distribution is paid directly to you, federal law generally requires 20% withholding.
If a taxable eligible rollover distribution is paid directly to you, the plan generally withholds 20% for federal income tax. To roll over the entire eligible amount, you generally need to replace that withheld amount with other funds within the applicable rollover period.
Leaving your job at or after age 55 can change the analysis.
A qualified employer plan such as a 401(k) may qualify for an exception to the 10% additional tax on early distributions when an employee separates from service during or after the calendar year in which the employee reaches age 55.
That particular separation-from-service exception does not apply to IRAs.
An outstanding plan loan deserves immediate attention.
Some plans may require an outstanding loan to be repaid after employment ends. If the balance is offset against the participant's account, tax and rollover rules can apply.
Certain qualified plan loan offsets caused by separation from employment can receive an extended rollover period—generally through the federal income-tax filing deadline, including extensions, for the year in which the offset occurs.
Find out what the old 401(k) is actually costing you.
A rollover should not be based solely on the assumption that an IRA is less expensive. Some employer plans provide very competitive institutional investment pricing.
Review the expense ratios of the investments you actually own.
Look for recordkeeping and recurring participant charges.
Determine whether you are enrolled in a managed-account or advisory service.
A simple checklist after changing jobs.
Locate your latest 401(k) statement. Confirm the balance, investments and any outstanding loan.
Confirm your vested balance. Determine whether any employer contributions were not yet vested.
Review your fees. Look at fund expenses, recordkeeping charges and advisory costs.
Compare your alternatives. Evaluate your old plan, new employer plan and an IRA side by side.
Then decide whether to move it. The destination should improve your situation—not simply change where the account is held.
A job change creates an opportunity to review—not an obligation to roll over.
The goal is to determine which account structure best fits your investment needs, costs, liquidity requirements and overall financial situation.
Before moving your old 401(k), have someone review it.
PortfolioLab can help evaluate the investments, fees, risk and structure of your former employer's 401(k) and compare those characteristics with the alternatives available to you.
Request a 401(k) ReviewSources used for this guide
- Internal Revenue Service — Retirement Topics: Termination of Employment
- Internal Revenue Service — Rollovers of Retirement Plan and IRA Distributions
- Internal Revenue Service — Exceptions to Tax on Early Distributions
- Internal Revenue Service — Retirement Plan Loan FAQs
- U.S. Department of Labor — What You Should Know About Your Retirement Plan
- U.S. Department of Labor — Changing Jobs and Job Loss
PortfolioLab LLC is a Florida-registered investment adviser. Registration does not imply a certain level of skill or training. This material is provided for general informational and educational purposes only and should not be construed as individualized investment, tax or legal advice. Retirement-plan provisions vary. A rollover may not be appropriate for every investor. Before moving retirement assets, consider the investment options, services, fees and expenses, withdrawal provisions, protections, tax consequences and other characteristics of each available alternative. PortfolioLab does not represent that an IRA or any other account structure will necessarily be less expensive or more appropriate than an employer retirement plan. Investing involves risk, including possible loss of principal.