Over a decade ago, I learned of a story of a then 74 year old retiree, let’s call her Amy. Amy was shocked when she received a bill from the IRS, informing her that she owed over $20,000, for not withdrawing sufficient amount from her old 401K accounts to meet the Required Minimum Distribution (RMD) from prior year(s). Even worse, Amy could not find those account(s), as the companies she worked for decades ago were acquired, some more than once, since she left.
Changing jobs is a major life transition—exciting, stressful, and full of opportunity. It also comes with a long to-do list. One task that often gets overlooked is deciding what to do with your 401(k) from your previous employer. While it might be tempting to ignore it, the choice you make can have a significant impact on your long-term financial future.
So, let’s take a look at the four main options for your 401(k) at times like this.
Option 1: Leave Your 401(k) With Your Former Employer
In many cases, you can leave your 401(k) right where it is, as long as your balance meets the plan’s minimum (often $5,000).
The pros are that you don’t need to do anything there, the investments remain tax-deferred, you enjoy strong legal protections under ERISA, and if the plan is good, you can continue to enjoy their benefits.
Though you will no longer be able to contribute to the account, and it may have limited investment options. Also, managing multiple retirement accounts can get confusing, and as in Amy’s case, you may forget about it over time.
Option 2: Roll It Over to Your New Employer’s 401(k)
If your new job offers a 401(k) and allows rollovers, you can transfer your old balance into the new plan.
This method allows you to consolidate retirement savings, it could be easier to manage and rebalance, you will continued tax-deferred growth, and it may allow access to loans (depending on the plan).
But, rollovers can take time and paperwork, and not all plans accept rollovers.
This option can be helpful if your new employer’s plan is strong and you value simplicity.
Option 3: Roll It Over Into an IRA
Rolling your 401(k) into a traditional IRA is one of the most popular choices—and for good reason.
This option can provide significantly more investment options, greater control over asset allocation, easy to consolidate multiple old 401(k)s, and continued tax-deferred growth.
But IRAs don’t offer the same legal protections as 401(k)s, there is no access to 401(k) loans, and it may affect future backdoor Roth IRA strategies.
Also, a direct rollover is key here. This ensures your funds move directly from your 401(k) to your IRA without triggering taxes or penalties. If you’re comfortable managing investments—or working with an advisor—this option offers flexibility and customization. There are also nuances such as, if there are company stock owned in your old company account, there could be tax saving strategies when you do a rollover into an IRA.
Option 4: Cash It Out (Usually Not Recommended)
You can choose to withdraw your 401(k) balance as cash, but this is almost always the most expensive option.
The attractiveness of this option is to gain immediate access to funds, and no rollover paperwork.
However, this route could be costly, and have negative impact to your financial future. There are income taxes to consider, 10% early withdrawal penalty if under age 59½, loss of future compound growth, and potential long-term retirement setback.
In summary, it can be wise to take some time before making a move, ask yourself a few important questions:
- Which options are available to you? How does the old and new plans compare, in their investment options, fees, and flexibility?
- Do you want simplicity or control, do you like one consolidated account, or more customization and options?
- How close are you to retirement? Legal protections and withdrawal rules become more important as you get older.
Many people make costly errors when handling old 401(k)s. Try to avoid:
- Forgetting about the account entirely like Amy
- Triggering taxes by taking an indirect rollover
- Choosing convenience without comparing fees
- Making emotional decisions during a stressful job transition
The Bottom Line
Changing jobs is a perfect time to reassess your retirement strategy. The best choice depends on your personal goals, timeline, and comfort level. If you’re unsure, a financial professional can help you evaluate your options and avoid costly mistakes.
Finally, remember that adjustment takes time. Your first few months in a new job are about learning, adapting, and finding rhythm. Financially, that means avoiding big commitments until your income, expenses, and workload feel predictable.
Changing jobs is more than a career move—it’s a financial turning point. With preparation, awareness, and intentional planning, you can turn the uncertainty of transition into a foundation for long-term financial health and flexibility.
Li Tian is a financial advisor offering securities and advisory services through LPL Financial, member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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