What Happens to My 401(k) When I Leave My Job? Your 4 Options

When you leave a job, your 401(k) stays yours. The money you put in is always 100% yours, and the account does not disappear. You have four choices: leave it in the old plan, move it to your new employer’s plan, roll it into an IRA, or cash it out. For most people, the best move is a direct rollover to an IRA or the new plan, and the worst is cashing out.

Here is what each option means, what it costs, and the deadlines and traps to watch for.

Quick check: see how much your balance could grow if you leave it invested with our free 401(k) calculator.

First, find out what is actually yours

Your own contributions, and the growth on them, are always fully vested. Your employer’s match may not be. Many plans use a vesting schedule, for example 20% a year over five years, or all at once after three years. If you leave before you are fully vested, you lose the unvested part of the match.

Check your plan’s website or your last statement for the “vested balance”. If you are a few weeks away from the next vesting date, it can be worth timing your last day around it.

Option 1: Leave it in your old employer’s plan

If your balance is over $7,000, your old employer generally has to let you leave it where it is. It keeps growing, invested the same way.

Good if: the old plan has low-cost funds, you like the investment options, or you are 55 or older and might want to use the rule of 55 (explained below).

Downsides: you cannot add new money, it is easy to forget about, and some plans charge former employees higher fees. Keep your address updated with the plan so statements reach you.

If your balance is between $1,000 and $7,000, the plan can move it into an IRA in your name without asking. Under $1,000, it can simply send you a check, minus tax withholding.

Option 2: Roll it into your new employer’s 401(k)

Many plans accept rollovers from your old one. Ask the new plan for its rollover form.

Good if: the new plan has good, cheap funds and you like having everything in one place. It also keeps the money in a 401(k), which can matter if you plan to do backdoor Roth IRA contributions later, since money in a traditional IRA complicates that.

Downsides: you are limited to the new plan’s menu of funds, and some plans have a waiting period before accepting rollovers.

Option 3: Roll it into an IRA

You open an IRA at a brokerage like Vanguard, Fidelity or Schwab and move the money there. A traditional 401(k) goes to a traditional IRA, and a Roth 401(k) goes to a Roth IRA, with no tax due either way.

Good if: you want the widest choice of investments and the lowest fees. In an IRA you can buy almost any index fund or ETF, such as the ones in our best index funds for beginners guide.

Downsides: you lose the rule of 55, and IRAs have slightly less protection from creditors in some states than 401(k)s do.

Option 4: Cash it out

This is almost always the expensive choice. If you take the cash before age 59½:

• The plan withholds 20% for federal tax right away.
• The full amount counts as income for the year, so you may owe more tax than was withheld.
• You usually pay an extra 10% early withdrawal penalty.
• State income tax may apply too.

On a $30,000 balance, someone in the 22% bracket could lose around $10,000 or more to tax and penalties. Worse, they lose all the future growth. That $30,000 left invested at 7% for 30 years could grow to about $228,000.

Direct vs indirect rollover: this matters

Direct rollover: the old plan sends the money straight to the new plan or IRA, sometimes as a check made out to the new account. No tax is withheld and there is nothing to report as income. This is the one you want.

Indirect rollover: the plan sends the money to you. It must withhold 20%, and you have 60 days to deposit the full amount, including the 20% that was withheld, into an IRA or plan. If you only deposit what you received, the missing 20% is treated as a withdrawal and taxed, with a penalty if you are under 59½.

What about a 401(k) loan?

If you borrowed from your 401(k), leaving your job usually makes the loan due. You have until your tax filing deadline for that year, including extensions, to repay it or roll the amount into an IRA. Whatever is not repaid is treated as a withdrawal, taxed, and hit with the 10% penalty if you are under 59½.

The rule of 55

If you leave your job in or after the year you turn 55, you can take money from that employer’s 401(k) without the 10% penalty. Regular income tax still applies. It only works for the plan at the job you just left, and only while the money stays in that plan. If you roll it to an IRA, you lose this option until 59½. Some public safety workers in government plans can use it from age 50.

A simple checklist when you leave a job

1. Log in to the old plan and write down your vested balance and any loan.
2. Update your personal email and address on the account.
3. Decide where the money goes: old plan, new plan or an IRA.
4. Ask for a direct rollover and keep copies of every form.
5. Once the money arrives, check that it is invested. Some IRAs leave rollovers in cash until you choose funds.
6. Enroll in your new employer’s plan as soon as you can and get the full match. Use the 401(k) calculator to see what it is worth.

Frequently asked questions

How long does my old employer keep my 401(k)?

If it is over $7,000, as long as you want, until required minimum distributions start in your 70s. Smaller balances can be moved out for you.

Do I pay tax when I roll over my 401(k)?

Not with a direct rollover into the same type of account. Moving traditional money into a Roth IRA is a conversion, and you pay income tax on the amount converted.

Can I lose my 401(k) if I get fired?

No. Your contributions and their growth are yours whether you quit, are laid off or are fired. Only unvested employer money can be lost.

Should I roll my 401(k) into a Roth IRA?

Only if you are ready to pay the tax on the converted amount, ideally in a low-income year. Compare both in our Roth vs traditional IRA guide.

This article is general information, not tax advice. Rules can change and every plan is different, so confirm the details with your plan administrator or a tax professional.