What to Do With Your 401k When You Change Jobs
You left your job — now what? Your 401k doesn't just disappear, but you have four choices: leave it with your former employer's plan, roll it to an IRA, roll it to your new employer's 401k, or cash it out. The right answer depends on your balance, your new plan's fees and investment options, and how close you are to retirement. This calculator shows the long-term numbers so you can compare apples to apples.
Option 1: Leave It In Your Old 401k
If your old 401k has good institutional-class funds with low expense ratios, leaving it there can be fine. You can't make new contributions, but the money continues to grow tax-deferred. The downside: you'll have another account to track, and if your old employer changes providers or adds fees, you become a "stuck" former employee with limited options.
Option 2: Roll to a Traditional IRA
This is the most popular choice, and for good reason: an IRA gives you total control over investments, often lower fees than any 401k, and no RMDs until age 73 (vs. the new 401k if you continue working). The tradeoff: if you ever need to use the backdoor Roth IRA strategy, a large Traditional IRA balance creates a pro-rata tax problem.
Option 3: Roll to Your New 401k
Consolidation for the win. Rolling into your new employer's plan keeps everything in one place and preserves the creditor protection that 401ks have under ERISA (better than IRAs). It also keeps the backdoor Roth free and clear. The downside: you're stuck with whatever investment options your new plan offers, which may be expensive or limited.
Option 4: Cash Out — The Worst Move (Usually)
Cashing out triggers ordinary income tax plus a 10% early withdrawal penalty if you're under 59½. For a $50,000 balance in the 22% bracket, you'd lose ~$16,000 to taxes and penalties. Over 30 years at 8%, that $50,000 would have grown to over $500,000. Cashing out is rarely the right financial decision, but people do it — often because they think the balance is "small" or they need the money urgently.
The Bottom Line
For most people: roll it to an IRA for lower fees and maximum flexibility. Roll to the new 401k if you want consolidation and maximum asset protection. Leave it in place if the funds are great and you don't mind the extra account. Never cash out unless it's truly a last resort.
2026 Contribution Limits at a Glance
Before you decide what to do with your old 401k, it helps to know where the limits stand for the current year. For 2026, the IRS raised the employee elective deferral limit to $24,500 (up from $23,500 in 2025). If you are 50 or older you can add a $8,000 catch-up (up from $7,500), and if you are between ages 60 and 63 and your plan allows it, a super catch-up of $11,250. The combined employee-plus-employer limit is $72,000 for 2026 — or $80,000 with the age-50 catch-up and $83,250 if you qualify for the 60-63 super catch-up. None of these limits apply to money you are simply moving between accounts: a rollover is not a contribution, so it never counts against your annual limit.
Why the Four Options Are Not Equal
On the surface, leaving your money in the old plan, rolling to an IRA, and rolling to a new 401k all look similar — the balance grows at roughly the same rate either way. The real differences are hidden in fees, flexibility, and legal protections. A 401k plan negotiates institutional share classes that an individual IRA investor cannot always access, but it also charges recordkeeping and administrative fees that are often buried in the plan documents. An IRA gives you the entire investing universe and usually the lowest cost, but it loses the ERISA creditor protection that 401k balances enjoy. A new employer's plan consolidates your accounts but locks you into that plan's investment menu. Run the numbers in the calculator above, but remember the inputs that matter most: expense ratios, the quality of available funds, and how close you are to retirement.
Common Mistakes When Leaving a Job
- Cashing out small balances. A $5,000 balance cashed out in the 22% bracket plus 10% penalty leaves roughly $3,400 in hand. Left invested at 8% for 30 years it would grow to more than $50,000.
- Forgetting the force-out rule. If your balance is between $1,000 and $7,000, your former employer can move it into an IRA (or cash it out below $1,000) without your consent. If you want control of the destination, initiate the rollover first.
- Doing an indirect rollover and missing the 60-day window. The IRS requires 20% withholding on indirect rollovers; if you do not deposit the full amount within 60 days, the withheld portion becomes a taxable distribution.
- Ignoring fees. A 1% difference in annual fees reduces a 30-year ending balance by roughly 28%. Compare the expense ratios in your old plan against what an IRA would charge before deciding where to park the money.
Action Steps
- Log in to your old plan and download the fee disclosure and fund expense ratios.
- Compare the old plan's menu and costs against a low-cost IRA or your new employer's plan.
- If rolling to an IRA, choose direct (trustee-to-trustee) — never take a check made out to you.
- Update your beneficiary designations on whichever account ends up holding the money.
- Set a reminder to check the account annually; forgotten 401k accounts are a leading source of lost retirement savings.