What Happens to Your 401(k) When You Change Jobs?
Your complete guide to handling old 401(k) accounts—the decision that could save or cost you thousands.
By CashSmartGuide Editorial Team - Last updated: January 2026 | 8 min read
You just accepted a new job. Exciting, right? Better pay, new opportunities, fresh start. But in all the excitement of starting something new, there's one critical financial detail most people completely overlook: what to do with the 401(k) from their old job.
Here's what usually happens. HR hands you a stack of paperwork on your last day, you sign everything quickly, and then your old 401(k) just sits there. Months turn into years. You forget the login credentials. The account statement goes to an old address. Eventually, you have no idea what's happening with money that could be worth tens or hundreds of thousands of dollars.
This guide explains exactly what happens to your 401(k) when you leave a job and walks through every option you have. By the end, you'll know the right move for your specific situation and how to execute it without making expensive mistakes.
The Quick Answer
Your 401(k) doesn't disappear when you change jobs—the money is still yours. You have four main options: leave it with your old employer, roll it into your new employer's 401(k), roll it into an IRA, or cash it out. Cashing out is almost always the worst choice due to taxes and penalties.
For most people, rolling into an IRA or your new employer's plan makes the most sense. Leave it with your old employer only if they have exceptional investment options or you need special protections.
What Actually Happens When You Leave Your Job
The moment you leave your employer, several things automatically change with your 401(k), and understanding these changes prevents costly surprises.
You Can No Longer Contribute
Your paycheck deductions stop immediately. You can't add new money to your old employer's 401(k) once you leave. The account becomes frozen for contributions but continues growing (or shrinking) based on how it's invested.
Employer Match Stops
No more free money from employer matching. This alone is a huge reason to enroll in your new employer's 401(k) as soon as you're eligible—you want to start capturing that match again.
Vesting Rules Apply
Your own contributions are always 100% yours. But employer match contributions might have vesting requirements. If you weren't fully vested, you could lose some or all of the employer match money when you leave. Check your vesting schedule before your last day.
Loan Repayment Accelerates
If you have an outstanding 401(k) loan, it typically becomes due immediately or within a short window (often 60-90 days). If you can't repay it, the remaining balance gets treated as a taxable distribution with penalties. This catches people off guard and can trigger massive tax bills.
Your Investment Options Don't Change
You can still move money between the investment options within the plan. You're just stuck with whatever investment menu your old employer offers. You can't add new funds to the selection.
The Critical 60-Day Window
Most employers give you 60 days after leaving to make a decision about your 401(k). If you don't act, they might automatically roll small balances (under $1,000) into an IRA they choose for you, often with higher fees than you'd pay if you chose yourself. Balances over $7,000 can usually stay indefinitely, but you need to actively decide what to do.
Your Four Options Explained
You have exactly four choices for what to do with your old 401(k). Each has specific advantages and disadvantages depending on your situation.
Option 1: Leave It With Your Old Employer
If your balance is over $7,000 (the threshold varies by plan), you can usually leave your money right where it is. The account stays invested and continues to grow, you just can't add new contributions or get employer matches.
Pros
- • No action required—simplest option
- • Keeps existing investments intact
- • May have access to institutional funds with lower fees
- • Strong creditor protection under ERISA
- • Can delay required minimum distributions if still working
Cons
- • Limited to plan's investment options
- • Easy to forget about and lose track of
- • Multiple old 401(k)s become hard to manage
- • May have account maintenance fees
- • Less flexibility than an IRA
Best For:
People with large balances in excellent, low-cost plans (like major tech companies or government employers). Also good if you're between ages 55-59½ and might need penalty-free withdrawals (401(k)s allow this for separated employees, IRAs don't until 59½).
Option 2: Roll It Into Your New Employer's 401(k)
Most employers allow you to transfer your old 401(k) balance into their plan. This consolidates your retirement savings into one place and keeps everything under the 401(k) umbrella.
Pros
- • Consolidates retirement accounts in one place
- • Continues strong ERISA creditor protection
- • May have better investment options than old plan
- • Simplifies management and tracking
- • Can borrow from balance (if new plan allows loans)
Cons
- • Limited to new employer's investment options
- • New plan might have higher fees than old plan
- • Not all plans accept rollovers
- • May have waiting period before you can roll in
- • Less flexible than an IRA
Best For:
People who like simplicity and want all retirement money in one place. Great if your new employer has an excellent 401(k) plan with low fees and good investment options. Also useful if you're planning backdoor Roth IRA contributions (rolling old 401(k)s keeps your IRA balance at zero).
Option 3: Roll It Into an IRA (Most Popular)
Transfer your 401(k) balance to an Individual Retirement Account that you open and control. This is the most common choice because it offers maximum flexibility and typically the best investment options.
Pros
- • Unlimited investment choices (stocks, ETFs, funds)
- • Usually lower fees than 401(k) plans
- • Complete control over investments
- • Can consolidate multiple old 401(k)s
- • More flexible withdrawal options
- • Easier estate planning and beneficiary options
Cons
- • No loan option (can't borrow from IRAs)
- • Slightly less creditor protection than 401(k)s
- • Can't do penalty-free withdrawals at 55
- • Requires choosing your own investments
- • May complicate backdoor Roth strategies
Best For:
Most people who change jobs frequently or want investment freedom. IRAs from providers like Vanguard, Fidelity, or Schwab offer thousands of investment options with rock-bottom fees. This is the default choice unless you have specific reasons to choose another option.
How to Roll Into an IRA:
- Open an IRA at Vanguard, Fidelity, Schwab, or similar provider (takes 15 minutes online)
- Contact your old 401(k) provider and request a direct rollover to your new IRA
- Provide your IRA account information to the 401(k) provider
- Wait 1-3 weeks for the check to be sent directly to your IRA
- Invest the money once it arrives (don't let it sit in cash)
Critical: Request a "direct rollover" where the check goes straight to your IRA provider. If they send the check to you, they'll withhold 20% for taxes and you have only 60 days to deposit it into an IRA.
Option 4: Cash Out (Almost Always Wrong)
Take the money as cash, pay the taxes and penalties, and spend it or invest it outside retirement accounts. This is the worst option in 95% of cases but people do it all the time.
The True Cost of Cashing Out
Let's say you have $30,000 in your old 401(k) and you're 35 years old in the 22% tax bracket.
• Starting balance: $30,000
• Federal taxes (22%): -$6,600
• Early withdrawal penalty (10%): -$3,000
• State taxes (estimated 5%): -$1,500
You actually receive: $18,900
You just lost $11,100 (37%) to taxes and penalties immediately. But it gets worse. If you had kept that $30,000 invested until age 65, it would have grown to approximately $240,000 at 7% annual returns. By cashing out, you gave up $221,100 in future retirement money.
Pros
- • Immediate access to cash
- • No restrictions on how you use it
- • Could help in genuine emergency
Cons
- • 10% early withdrawal penalty (if under 59½)
- • Federal income taxes on entire amount
- • State income taxes
- • Lose decades of tax-free compound growth
- • Sets retirement savings back years
- • Can push you into higher tax bracket
The Only Time to Consider Cashing Out:
Genuine financial emergency where you have no other options—imminent eviction, critical medical care, or similar crisis. Even then, explore every alternative first: personal loans, borrowing from family, payment plans, emergency assistance programs. Cashing out your 401(k) should be the absolute last resort.
How to Decide Which Option Is Right for You
Stop overthinking this. Here's a simple decision tree that covers 90% of situations.
Step 1: Rule Out Cashing Out
Unless you're facing genuine financial catastrophe with no alternatives, cashing out is off the table. The tax and penalty costs plus lost compound growth make this a wealth destroyer. Move to step 2.
Step 2: Compare Your Old and New 401(k) Plans
Look at the investment options and fees in both plans. If your old employer has significantly better options (think tech company or government plan with institutional funds), consider leaving it there. If your new employer has the better plan, rolling into it makes sense.
If both plans are mediocre with limited options and high fees (expense ratios above 0.50%), an IRA is probably better.
Step 3: Consider Your Future Plans
Are you planning to change jobs frequently? Roll everything into an IRA and keep consolidating there with each job change. Much simpler than managing five different old 401(k) accounts.
Planning to stay at your new employer long-term? Rolling into their 401(k) keeps everything in one place.
Step 4: Special Considerations
Ages 55-59½: Leaving money in your old 401(k) allows penalty-free withdrawals if you separated from service at 55 or later. IRAs don't have this exception.
Need to borrow money: Only 401(k)s allow loans, not IRAs. Keep money in a 401(k) if you might need to borrow from it.
High earner doing backdoor Roth: Rolling old 401(k)s into your new employer's plan (not an IRA) keeps your IRA balance at zero, which is necessary for backdoor Roth contributions.
Default Choice for Most People
Roll into an IRA at Vanguard, Fidelity, or Schwab. You get unlimited investment options, low fees, complete control, and the ability to consolidate all future job changes into the same account. This works well for 70-80% of people changing jobs.
Step-by-Step: How to Roll Over Your 401(k)
Executing a rollover is straightforward if you follow the process carefully. Here's exactly what to do.
Rolling to an IRA (Most Common)
- 1. Choose an IRA Provider
Open an IRA at Vanguard, Fidelity, Schwab, or similar low-cost provider. This takes about 15 minutes online. You'll need to choose Traditional IRA (for traditional 401(k) money) or Roth IRA (if converting).
- 2. Contact Your Old 401(k) Provider
Call them or log into their website. Request a "direct rollover" to your new IRA. Give them your IRA account number and the provider's address.
- 3. Complete Required Paperwork
Your 401(k) provider will send forms. Fill them out completely and accurately. Any mistakes delay the process by weeks.
- 4. Wait for the Transfer
The 401(k) provider will send a check directly to your IRA provider (not to you). This takes 1-3 weeks typically. You can track the status by calling the 401(k) provider.
- 5. Invest the Money
Once the money arrives in your IRA, it sits in cash until you invest it. Log in and choose your investments immediately. Don't let it sit earning nothing. For investment guidance by age, see our investment strategies guide.
Rolling to Your New Employer's 401(k)
- 1. Confirm Your New Plan Accepts Rollovers
Contact your new employer's HR or 401(k) provider. Ask if they accept rollovers and if there's a waiting period. Some plans make you wait 3-6 months after hire.
- 2. Get Your New 401(k) Account Details
You'll need your account number and the plan's receiving address. Your new 401(k) provider gives you this information.
- 3. Initiate Direct Rollover From Old Plan
Contact your old 401(k) provider, request a direct rollover to your new employer's plan, and provide the account details.
- 4. Monitor the Transfer
The check goes from old provider to new provider. Takes 2-4 weeks typically. Check with both providers to confirm receipt.
- 5. Verify Investments
Once money arrives, make sure it's invested according to your elections. It might default to a money market fund temporarily.
Costly Mistakes to Avoid
Taking an Indirect Rollover
If you have the check made out to you instead of directly to the receiving institution, your 401(k) provider must withhold 20% for taxes. You then have 60 days to deposit the full amount (including making up that 20% from other funds) into your IRA or you'll owe taxes and penalties on the withheld amount. Always request a direct rollover.
Missing the 60-Day Deadline
If you do an indirect rollover (check made to you), you have exactly 60 days to deposit it into an IRA or new 401(k). Miss this deadline and the entire amount becomes taxable income plus 10% penalty if you're under 59½. The IRS rarely grants extensions.
Mixing Up Traditional and Roth Money
Traditional 401(k) money must go into a traditional IRA. Roth 401(k) money must go into a Roth IRA. Rolling traditional money into a Roth IRA is a Roth conversion that triggers immediate taxes on the entire amount. Make sure you're rolling into the correct type of account unless you deliberately want to do a conversion.
Forgetting About Old 401(k)s
Americans have an estimated $1.35 trillion in forgotten 401(k) accounts from old jobs. You move, change email addresses, lose login credentials, and suddenly you have no idea where tens of thousands of dollars went. Consolidate your accounts to prevent this.
Leaving Money Uninvested After Rollover
Money transferred into an IRA typically sits in a money market or settlement fund earning almost nothing until you actively invest it. People complete the rollover and then forget to actually buy investments. Check your account a week after the rollover and make sure the money is invested in actual funds.
Not Checking Vesting Status Before Leaving
If you're not fully vested in employer contributions, leaving your job means forfeiting unvested money. Sometimes waiting just a few more weeks or months gets you fully vested and keeps thousands of additional dollars. Check your vesting schedule before submitting your resignation.
Special Situations That Change Your Decision
You Have Company Stock in Your 401(k)
If your 401(k) holds highly appreciated company stock, look into Net Unrealized Appreciation (NUA) treatment. This advanced strategy lets you transfer company stock to a taxable brokerage account and pay capital gains tax instead of ordinary income tax on the appreciation. Can save tens of thousands in taxes but requires careful execution. Consult a tax professional before touching company stock.
You're Planning Early Retirement
The Rule of 55 lets you withdraw from your 401(k) penalty-free if you leave your employer at age 55 or later. This doesn't apply to IRAs. If you're 55-59 and might retire early, keep money in your 401(k) to preserve this penalty-free withdrawal option.
You Have an Outstanding 401(k) Loan
When you leave your job with an outstanding loan, you typically have 60-90 days to repay it in full. If you can't, the remaining balance becomes a taxable distribution with penalties. Try to repay it from savings or negotiate a payment plan with the provider. This is one reason 401(k) loans are risky.
You're Doing Backdoor Roth IRA Contributions
Having money in a traditional IRA complicates backdoor Roth IRA contributions due to the pro-rata rule. If you're a high earner doing backdoor Roths, consider rolling old 401(k)s into your new employer's plan instead of an IRA. This keeps your traditional IRA balance at zero. Learn more about traditional vs Roth strategies.
You're Changing Careers to Self-Employment
If you're leaving to start a business or become a contractor, you won't have access to a new employer 401(k). Rolling into an IRA is your best option. Consider opening a Solo 401(k) or SEP-IRA for your new self-employment retirement savings.
Recommended Timeline
Don't rush this decision, but don't procrastinate for years either. Here's a reasonable timeline.
Before Your Last Day
• Check your vesting status
• Get contact info for your 401(k) provider
• Download all statements and records
• Repay any outstanding 401(k) loans if possible
• Note your investment allocation and funds
Within First Month After Leaving
• Assess your new employer's 401(k) plan quality
• Research IRA providers if considering that route
• Compare fees and investment options across all choices
• Make your decision on which option to pursue
Within 2-3 Months
• Open IRA or confirm new employer plan eligibility
• Initiate the rollover process
• Complete all required paperwork
• Track the transfer to completion
Immediately After Transfer Completes
• Verify all money arrived correctly
• Invest the transferred funds (don't leave in cash)
• Save confirmation documents
• Update your personal financial records
Common Questions
How long do I have to move my 401(k) after leaving a job?
If your balance is over $7,000, you can leave it indefinitely (though this isn't recommended). For balances under $1,000, employers can cash you out. Between $1,000-$7,000, they can roll you into an IRA of their choosing. There's no legal deadline to move it, but you should act within 2-3 months to maintain control.
Can I roll my 401(k) into an IRA while still employed?
Generally no, not while you're still working for that employer. Most plans don't allow in-service distributions to IRAs except in special circumstances (age 59½ or older, hardship, etc.). Once you leave the job, you can roll it over.
What happens to my 401(k) if my old employer goes out of business?
Your 401(k) is held in a trust separate from company assets. Even if your employer goes bankrupt, your retirement money is protected. The plan will either continue with a new administrator or participants will be given time to roll their money elsewhere. Your savings are safe.
Should I roll my Roth 401(k) into a Roth IRA?
Usually yes. Roth IRAs have more flexibility than Roth 401(k)s—no required minimum distributions in your lifetime, easier withdrawal rules, and more investment options. Rolling Roth 401(k) to Roth IRA is tax-free and gives you better long-term benefits.
Can I roll multiple old 401(k)s into one IRA?
Absolutely. This is one of the best reasons to use an IRA. You can consolidate all your old 401(k)s from multiple jobs into a single IRA for much easier management. Just make sure to roll traditional 401(k)s into a traditional IRA and Roth 401(k)s into a Roth IRA.
Will I pay taxes on a 401(k) rollover?
No taxes on a direct rollover from traditional 401(k) to traditional IRA, or from Roth 401(k) to Roth IRA. You only pay taxes if you cash out, do an indirect rollover and miss the 60-day deadline, or deliberately convert traditional to Roth. For more on tax strategies, see our guide on how 401(k)s work.
The Bottom Line
What happens to your 401(k) when you change jobs is entirely up to you. The money is yours, and you have complete control over what to do with it. The worst thing you can do is nothing—letting old 401(k) accounts pile up across your career until you lose track of them.
For most people, rolling into an IRA makes the most sense. You get unlimited investment options, low fees, easy consolidation of multiple accounts, and complete control. Open an IRA at a quality provider like Vanguard, Fidelity, or Schwab, initiate a direct rollover from your old 401(k), and invest the money according to your age and risk tolerance.
If your old employer has an exceptional plan or your new employer's plan is outstanding, keeping money in the 401(k) system makes sense. If you're between 55-59½ and might need penalty-free access, leave it in your old 401(k). If you're doing backdoor Roth contributions, roll into your new employer's plan.
Whatever you decide, make the decision deliberately and execute it properly. Don't cash out unless you're facing genuine financial catastrophe. Your 401(k) is one of your most valuable assets—treat the rollover decision with the seriousness it deserves, but don't overthink it to the point of paralysis. Pick the best option for your situation, execute the direct rollover, invest the money appropriately, and move on with your life.
Related 401(k) Planning Guides
Financial Disclaimer
This article provides general educational information about 401(k) rollovers and job changes. It should not be considered personalized financial, tax, or legal advice. Individual circumstances vary significantly based on account balance, age, tax bracket, state of residence, employer plan features, and many other factors. Rollover decisions have important tax implications and long-term financial consequences. Before making any decisions about rolling over or transferring your 401(k), consult with qualified financial advisors, tax professionals, and legal counsel who can assess your specific situation. Tax laws and retirement plan regulations change regularly and vary by jurisdiction.