How to Roll Over a 401(k) When You Change Jobs
In this guide
- Your four options for an old 401(k)
- Why cashing out costs so much
- Should you leave it, or roll it?
- Traditional vs. Roth: match the account types
- Direct vs. indirect rollovers
- How to roll over your 401(k), step by step
- Don’t forget these details
- Example: consolidating three old accounts
- Frequently asked questions
- What to remember
Young professionals change jobs often, and each move can leave a 401(k) behind. Over a decade, it’s easy to end up with three or four small accounts scattered across old employers, each with different funds, fees and logins. Worse, some people cash out an old account when they leave, losing a big chunk to taxes and penalties.
Here’s what you can do with an old 401(k), how a rollover works step by step and the mistakes to avoid.
Your four options for an old 401(k)
| Option | Pros | Cons |
|---|---|---|
| 1. Leave it in your old employer’s plan | No action needed; may have good low-cost funds | Easy to forget; limited choices; can’t contribute more |
| 2. Roll it into your new employer’s 401(k) | Everything in one place; may allow future 401(k) loans | Depends on the new plan’s funds and fees; not all plans accept rollovers |
| 3. Roll it into an IRA | Widest investment choice; often lowest costs; full control | Possible complications for backdoor Roth contributions; fewer creditor protections in some states |
| 4. Cash it out | Immediate cash | Income tax plus a 10% penalty if under 59½; loses future growth |
For most people, options 2 or 3 are the best. Option 4 is almost always the most expensive choice.
Why cashing out costs so much
Say you’re 30, in the 22% federal tax bracket, and you cash out a $20,000 401(k):
| Item | Amount |
|---|---|
| Balance | $20,000 |
| Federal income tax (22%) | −$4,400 |
| Early withdrawal penalty (10%) | −$2,000 |
| State income tax (example 5%) | −$1,000 |
| What you actually keep | $12,600 |
You’d lose more than a third of the balance immediately. And if that $20,000 had stayed invested for 35 years at a hypothetical 7% return, it could have grown to more than $200,000.
Should you leave it, or roll it?
Leaving it in the old plan can make sense if:
- The plan has excellent low-cost funds you can’t get elsewhere
- You might want to use the “rule of 55,” which allows penalty-free withdrawals if you leave a job in or after the year you turn 55
- You’re temporarily between jobs and haven’t decided yet
Note: If your balance is small, your old employer may not let you stay. Plans can automatically move balances under $7,000 into an IRA, and may cash out balances under $1,000.
Rolling into your new 401(k) makes sense if:
- Your new plan has low fees and good funds
- You want all your workplace savings in one place
- You plan to use backdoor Roth IRA contributions (pre-tax IRA balances can complicate them)
Rolling into an IRA makes sense if:
- You want more investment choices and lower costs
- Your new employer’s plan is expensive or doesn’t accept rollovers
- You want one consolidated account that stays with you no matter where you work
Traditional vs. Roth: match the account types
Keep the tax treatment consistent:
| Old account | Roll into |
|---|---|
| Traditional (pre-tax) 401(k) | Traditional IRA or new employer’s traditional 401(k) |
| Roth 401(k) | Roth IRA or new employer’s Roth 401(k) |
Rolling pre-tax money into a Roth IRA is possible, but it’s a Roth conversion: the amount is taxable as income that year. That can be a smart move in a low-income year, but it should be a deliberate choice. Our guide to Roth vs. traditional IRAs explains the trade-off.
Direct vs. indirect rollovers
This is where most expensive mistakes happen.
Direct rollover (recommended)
The money moves straight from your old plan to the new account, often as a check made payable to the new institution “for the benefit of” you. No taxes are withheld, and there’s no deadline to worry about.
Indirect rollover (avoid if possible)
The old plan sends the money to you. Your old employer must withhold 20% for federal taxes. You then have 60 days to deposit the full balance into a new retirement account, including the 20% that was withheld, which you’d need to cover from other savings.
Example: You roll over $20,000 indirectly. The plan withholds $4,000 and sends you $16,000. To complete the rollover, you must deposit $20,000 within 60 days. If you deposit only $16,000, the $4,000 difference is treated as a taxable distribution and may be subject to the 10% penalty. You’d get the withheld $4,000 back as a tax credit when you file, but only later.
Generally, you can do only one indirect IRA-to-IRA rollover in any 12-month period. Direct transfers don’t count toward that limit.
How to roll over your 401(k), step by step
- Decide where the money will go: your new employer’s plan or an IRA.
- Open the receiving account, if needed. For an IRA, choose a brokerage with no account fees and low-cost index funds.
- Contact your old plan administrator. The name is usually on your old statements. Ask for a direct rollover and the required forms.
- Provide the receiving account details, including the account number and the institution’s rollover instructions.
- Watch for the money to arrive. If a check is mailed to you, it should be payable to the new institution; forward it promptly.
- Invest the money. Rolled-over funds often arrive as cash. Choose your investments, such as a target-date fund or broad index funds.
- Keep records. You’ll receive Form 1099-R showing the distribution; a direct rollover is reported as non-taxable.
Don’t forget these details
- Unvested employer contributions are forfeited when you leave. Check your vesting schedule before you resign, if timing is flexible.
- Outstanding 401(k) loans may need to be repaid by your tax filing deadline (including extensions) after you leave, or the balance is treated as a taxable distribution.
- Company stock in your 401(k) may qualify for special tax treatment (net unrealized appreciation). Get advice before rolling it over.
- Track old accounts. If you’ve lost track of an old 401(k), the Department of Labor’s Retirement Savings Lost and Found database can help you search.
Example: consolidating three old accounts
By 32, Jordan has worked at three companies and left a 401(k) at each:
| Account | Balance | Type | Fund expense ratios | Notes |
|---|---|---|---|---|
| Employer A 401(k) | $6,500 | Traditional | 0.75%–1.10% | Small balance; plan may move it automatically |
| Employer B 401(k) | $18,000 | Traditional and Roth | 0.02%–0.15% | Excellent low-cost index funds |
| Employer C 401(k) | $11,000 | Traditional | 0.45%–0.90% | High administrative fee |
| Current employer 401(k) | $9,000 | Traditional | 0.04%–0.20% | Accepts roll-ins |
Jordan’s plan:
- Employer A: direct rollover of the $6,500 into the current employer’s 401(k) to escape high fees.
- Employer B: leave it, because its funds are excellent and cheap. Jordan sets a reminder to review it yearly.
- Employer C: direct rollover of the traditional money into the current plan.
- Roth portion of Employer B: if Jordan later decides to consolidate, it goes into a Roth IRA or the current plan’s Roth 401(k), never into a traditional account.
Jordan keeps traditional and Roth money separate, avoids an IRA because he plans to make backdoor Roth contributions in the future and reduces his number of logins from four to two.
How to find an old 401(k)
- Search your email and old paperwork for statements or the plan administrator’s name.
- Contact your former employer’s HR department.
- Check Form 5500 filings or ask the plan for contact details.
- Use the Department of Labor’s Retirement Savings Lost and Found database, which helps workers locate retirement plans from past employers.
- Search state unclaimed property databases, in case a small balance was cashed out and the check went uncashed.
Frequently asked questions
Is a 401(k) rollover taxable?
A direct rollover between accounts of the same tax type (pre-tax to pre-tax, or Roth to Roth) isn’t taxable. Rolling pre-tax money into a Roth account is taxable as a conversion.
How long does a 401(k) rollover take?
Usually two to six weeks, depending on the plan administrator and whether a paper check is involved.
Can I roll over a 401(k) while still employed?
Some plans allow “in-service” rollovers, often after age 59½. Check your plan’s rules.
Do I have to roll over my 401(k) right away?
No. Unless your balance is small enough that your old plan automatically moves it, you can take your time. Just don’t forget about it.
Is it better to roll into an IRA or my new 401(k)?
It depends on costs and investment options. An IRA usually offers more choices and lower fees; a new 401(k) keeps things consolidated and avoids complications with backdoor Roth contributions.
What to remember
When you change jobs, you can leave your 401(k) where it is, roll it into your new employer’s plan or roll it into an IRA. Avoid cashing out, which can cost a third or more of your balance. Always request a direct rollover, keep traditional and Roth money in matching account types and invest the money once it arrives.
Today: List every old 401(k) you have, with balances and fees. For each, choose where it should live and request a direct rollover. Then review your new employer’s plan in our guide to how a 401(k) works.