Does a 401(k) Really Transfer from Job to Job? – Avoid This Mistake + FAQs

Confused about whether your 401(k) transfers from job to job? You’re not alone.

A stunning 41% of U.S. workers choose to cash out their 401(k) when leaving a job instead of rolling it over.

This decision can trigger taxes, penalties, and lost retirement growth. Changing jobs raises crucial questions about what happens to your 401(k) and how to preserve your hard-earned savings.

When you switch employers, your 401(k) doesn’t automatically follow you to the new job. The money in your account (at least the vested portion) remains yours, but you must decide what to do with it. Will you leave it in the old plan, move it to your new employer’s plan, roll it into an IRA, or cash it out?

Each choice has important tax implications, legal considerations, and potential benefits or drawbacks for your financial future.

In this comprehensive guide, we’ll explore how 401(k) transfers work when you change jobs. We start by examining the federal laws (and a few state nuances) that govern 401(k) rollovers, so you understand your rights under the law.

Next, we break down your options for managing a 401(k) after a job change, with data-driven insights on what many Americans do (and mistakes to avoid 😬).

We’ll compare different types of retirement plans (traditional vs. Roth 401(k), 403(b), etc.) and outline the pros and cons of rolling over your 401(k). You’ll also find definitions of key terms and answers to frequently asked questions. Short, clear sections will help you navigate this complex topic with ease.

Let’s dive in and learn how to make a smooth 401(k) transition when you change jobs, so you can keep your retirement savings on track 📈.

⚖️ Federal Laws Governing 401(k) Rollovers

ERISA and Ownership of Funds: Your 401(k) is protected by federal law under the Employee Retirement Income Security Act (ERISA). This means the money in your 401(k) is yours (once vested) and is held in trust for you.

Creditors generally cannot seize your 401(k) funds under ERISA’s anti-alienation clause, regardless of what state you live in. In other words, if you’re sued or have debts, your 401(k) is shielded from collection in most cases. (Exceptions apply for IRS tax levies, or divorce settlements via Qualified Domestic Relations Orders, but regular creditors can’t touch it.)

This federal protection ensures that when you leave a job, your 401(k) savings remain intact for you to take or transfer.

Vesting Rules: Federal law allows employers to require a period of service before their matching contributions become vested (fully owned by you). If you leave your job before you are fully vested, any unvested employer contributions are forfeited back to the plan.

Your own contributions (and their investment earnings) are always 100% yours. For example, if your employer matched your 401(k) but with a 3-year vesting period and you leave after 2 years, you’ll lose the unvested match.

The vested balance is the amount you can take with you. It’s important to check your plan’s vesting schedule so you know how much of the account balance will go with you when you transfer jobs.

Eligible Rollover Distributions: Under IRS rules, when you terminate employment you can usually take a distribution of your 401(k) balance. Most distributions from a 401(k) (except required minimum distributions, loans, or hardship withdrawals) are considered “eligible rollover distributions.”

This means you are allowed to roll them over (transfer them) into another qualified retirement plan or an IRA, tax-free, as long as you follow the rollover rules.

The plan administrator is required to give you a written notice of your rollover options when you leave the company. If your vested account balance is above a minimal amount (over $200), they must offer you the choice of a direct rollover to another plan or IRA.

60-Day Rollover Rule: If you elect to take the money out of the 401(k) as a check to yourself (an indirect rollover), be aware of the strict timeline.

You have 60 days from the date you receive the distribution to redeposit that money into another retirement account (like a new 401(k) or an IRA) to avoid it counting as taxable income.

If you miss the 60-day window, the IRS will treat the distribution as a permanent withdrawal – meaning it becomes taxable and potentially subject to penalties. In some cases of hardship or error, the IRS can waive the 60-day requirement, but that’s not guaranteed.

The safest approach is to do a direct rollover whenever possible, so you never touch the money and don’t risk missing the deadline.

Direct vs. Indirect Rollover (and 20% Withholding): A direct rollover (also called a trustee-to-trustee transfer) is the recommended way to transfer a 401(k). In a direct rollover, the funds move directly from your old plan to your new plan or IRA.

No taxes are withheld, and you never take possession of the money. If instead you have the 401(k) funds paid to you (an indirect rollover), the plan is required by federal law to withhold 20% for federal income tax. For example, if you request a $10,000 distribution payable to yourself, you’ll receive a check for $8,000 and $2,000 will be sent to the IRS as withholding.

You can still rollover the money within 60 days, but you’d have to make up the 20% with other funds to avoid taxes on that portion. The IRS will refund the withheld amount when you file your tax return (assuming you successfully rolled everything over).

To avoid this hassle, it’s best to have the check made payable to your new plan or IRA or use an electronic transfer, so the 20% mandatory withholding doesn’t apply. In short: opt for a direct rollover to keep the process clean and tax-free.

Taxation and Early Withdrawal Penalties: If you do not roll over the 401(k) and instead cash it out, the distribution is generally subject to ordinary income tax (federal and state). On top of that, if you’re younger than age 59½, a 10% early withdrawal penalty typically applies under IRS rules.

There are exceptions to the 10% penalty, however. Notably, the “Rule of 55” allows an exception for some 401(k) withdrawals: if you leave your job in or after the year you turn 55, you can take distributions from that 401(k) plan without the 10% penalty (you’ll still owe regular income tax).

This can be useful for early retirees or anyone who needs to tap their 401(k) after age 55 but before 59½. (For certain public safety employees like police or firefighters, the penalty-free age is 50 for that employer’s plan.)

Note that this exception only applies to the 401(k) of the job you left at age 55+, not to IRAs or to 401(k)s from earlier jobs. If you roll your 401(k) over to an IRA, you generally lose the Rule of 55 protection – IRAs have their own rules and usually no age-55 exception. Keep these nuances in mind when deciding whether to roll over or leave money in the old plan if you’re in that mid-50s age range.

Small Balance Auto-Distributions: Federal regulations allow (and in some cases require) plan administrators to force out small accounts when employees leave. If your vested 401(k) balance is below a certain threshold, your former employer can close out your account without your consent. Prior to 2024, that threshold was $5,000; the SECURE 2.0 Act of 2022 raised it to $7,000 starting in 2024. Here’s how it works:

• If your vested balance is under $1,000, the plan may cash out your account and send you a check (less 20% withholding for taxes). You could still roll over that money within 60 days, but many people in this situation end up just pocketing the small check (and often spending it).
• If your vested balance is between $1,000 and $7,000, the plan can automatically roll over your 401(k) into an IRA chosen by the plan (often called a “safe harbor IRA”) if you don’t respond to distribution paperwork. Essentially, they will set up an IRA on your behalf and transfer the money there to preserve its tax-deferred status.
• If your balance is above that threshold (>$7,000 as of 2024), the plan cannot force you out – you typically have the right to leave your money in the 401(k) if you choose.

These rules prevent old plans from holding lots of tiny accounts (and prevent people from forgetting small sums).

Important: If you have a small 401(k) balance and change jobs, pay close attention to any notices from the plan. If you ignore them, you might find your account automatically moved to an IRA or cashed out.

The automatic IRA might have very conservative investments or higher fees, so you’d likely want to take control of it and perhaps consolidate it with your other retirement savings.

Plan Fees and Access: Federal law also requires 401(k) plans to disclose fees and provide certain rights to participants, but once you leave a job, you may no longer enjoy all the plan’s features.

For example, 401(k) loans are generally only available to current employees; after you leave, you usually cannot borrow from that old 401(k). If you had an outstanding loan when you left, failing to repay it quickly can result in a loan default and a taxable distribution.

Also, while employed, some plans let you make in-service rollovers or withdrawals at age 59½, but after leaving you don’t contribute anymore – the account is basically frozen until you decide to move it or withdraw in the future. Federal law ensures you always have the option to roll over or take distribution of your vested balance when you leave; it’s up to you to take action.

Notification and Consent: Under federal law, if your balance is above the automatic distribution threshold, your employer cannot move or cash out your 401(k) without your consent. They must leave it in the plan until you direct otherwise.

You might get periodic reminders or notices, but ultimately the choice to transfer or not is yours (for balances > $7k). Plans also typically won’t distribute funds without your initiated claim if the balance is large, because they prefer not to hold “stranded” accounts forever. Some plans will eventually consider terminating the plan or transferring old accounts to an IRA after many years, but they must follow Department of Labor rules in doing so.

In summary, federal law gives you the right to roll over or keep your 401(k) money when you change jobs, and protects that money from most outside threats. By understanding the 60-day rule, tax withholding, and exceptions like the Rule of 55, you can make informed decisions that avoid unnecessary taxes or penalties.

State Law Nuances and Protections

While federal law predominates in regulating 401(k) plans, there are a few state-level nuances to be aware of when transferring or handling your retirement savings:

Creditor Protection Differences: As noted, ERISA-covered plans (like 401(k)s) are protected from creditors under federal law in all states. However, once you roll over your 401(k) into an IRA, the funds may lose ERISA protection and become subject to state creditor laws. IRAs are not covered by ERISA and thus state law determines the extent of creditor protection.

In bankruptcy, federal law shields up to $1–1.5 million of IRA assets (adjusted periodically for inflation) for the debtor’s lifetime, so rolled-over 401(k) money in an IRA is usually safe in a bankruptcy up to that cap. Outside of bankruptcy, some states offer strong protections for IRAs, while others offer limited or none.

For example, Texas and Florida generally protect IRA assets from creditors to an unlimited extent (similar to 401(k)) under state law, whereas a state like California only protects IRA funds to the extent the court deems necessary for the support of the debtor (potentially leaving large IRAs exposed).

If you live in a state with weaker creditor protection for IRAs, you might prefer to roll into a new employer’s 401(k) (which retains ERISA protection) rather than an IRA, especially if asset protection is a concern. In short, where you live matters more once your money is in an IRA. This is an often overlooked consideration when deciding to roll over – if you have significant assets and worry about lawsuits, keeping funds in an ERISA-qualified 401(k) could be safer than an IRA.

State Income Taxes: For the most part, a direct rollover of a 401(k) is not taxable at the state level either. If you do a rollover correctly, you won’t incur state income tax because it’s not a taxable event.

However, if you cash out your 401(k), state taxes will likely apply on that distribution as income (except in states with no income tax). States may also have their own early withdrawal penalties or additional taxes (for instance, California imposes an extra 2.5% tax on early distributions on top of the federal 10% penalty).

When you roll over funds, you avoid these state taxes. If you’re moving to a new state for a job, keep in mind that the state you reside in when you eventually withdraw the money in retirement could tax those distributions.

Some states give partial exemptions for retirement income. For example, a state might not tax 401(k)/IRA distributions up to a certain amount or if you’re above a certain age. While this doesn’t directly affect the act of transferring your 401(k) now, it’s good long-term context.

Community Property and Divorce: In community property states (like California, Texas, Arizona, etc.), your retirement savings accrued during marriage are generally considered marital property.

However, even here, federal law (ERISA) requires a Qualified Domestic Relations Order (QDRO) to actually assign a portion of your 401(k) to an ex-spouse. State family law might say your ex is entitled to a portion, but it’s the QDRO (a court order meeting federal requirements) that effectuates the split.

The key nuance: if you are in the midst of a divorce, do not roll over or withdraw your 401(k) without legal advice, because doing so could complicate the QDRO process or violate a restraining order on assets. Once rolled to an IRA, for instance, a QDRO can’t apply (IRAs use a different process under state law).

So if divorce is on the horizon, that’s a special case where leaving the 401(k) in place until the legal matters are settled might be wise.

State-Mandated Retirement Programs: A growing number of states have introduced state-run retirement programs (for workers whose employers don’t offer a 401(k)). These typically involve Roth IRAs (like CalSavers in California or Illinois Secure Choice).

While not directly related to transferring a private 401(k), if you move to a job in a state with such a program and no employer plan, you might end up with an IRA in that program.

You could potentially roll your old 401(k) into that IRA, but be cautious: those programs often have contribution limits and may not accept rollovers, since they are Roth IRAs with annual limits.

It’s usually better to roll into a regular IRA you control. Just be aware of any state-level retirement plan you’re auto-enrolled in at a new job; it’s separate from your old 401(k), and you might consolidate it with your other accounts later if needed.

State Tax Withholding on Rollovers: Some states require state tax withholding on distributions just like the feds do. If you take a cash distribution (not a direct rollover), you might see state income tax withheld in addition to the 20% federal.

For example, if you cash out a 401(k) while living in North Carolina, the plan might automatically withhold the state’s flat income tax percentage from the payout.

However, with a direct rollover, no state tax should be withheld since it’s not a taxable distribution. Always check the paperwork: it will indicate if any state withholding applies based on your address.

In summary, state laws won’t stop you from rolling over your 401(k) – that process is standard nationwide under federal law. But once your money is outside an employer plan (like in an IRA or cashed out), state-specific rules on taxes and asset protection kick in.

Consider your personal situation: if you have concerns about lawsuits, understand your state’s stance on IRA protection; if you’re cashing out, know your state tax bite. And if moving states, remember that your 401(k) doesn’t care where you live, but your future withdrawals might be taxed differently in your new home.

🔀 Options for Your 401(k) When You Change Jobs

When you leave an employer, you generally have four options for your 401(k) account. The right choice depends on your financial goals, the specifics of your old and new plans, and personal circumstances. Let’s break down each option:

Option 1: Leave the Money in Your Old 401(k)

You can choose to leave your 401(k) account with your former employer’s plan, if the plan allows. For larger account balances, this is typically allowed — especially now with balances over $7,000 being protected from forced roll-out. Here’s what this option entails:

• Process: Do nothing, essentially. Your money stays invested in the old plan, continuing to grow tax-deferred. You’ll no longer be contributing to it, but it remains yours. Make sure the plan administrator has your current contact information (address, email) so you continue to receive statements and notices.

• Pros: Leaving the money put can be convenient. You don’t have to deal with any paperwork or decisions right away during the hustle of starting a new job. If your old 401(k) has excellent investment options (for example, institutional-class funds with ultra-low fees or a unique stable value fund with good interest rates), you might want to keep those benefits. Your money also stays in an ERISA-protected account, maintaining full creditor protection as before. Additionally, if you separated from service at age 55 or older and might need to withdraw funds soon, leaving money in that 401(k) preserves your ability to use the Rule of 55 penalty-free withdrawals (which you’d lose if you rolled it to an IRA). Some people leave funds in the old plan specifically to take distributions at 55–59 without penalty.

• Cons: While it’s the easiest short-term, leaving behind a 401(k) can lead to challenges later. Managing multiple accounts can be cumbersome – you’ll have to keep track of another statement, another website login, and possibly another set of fees. Over time, people tend to forget about old accounts. In fact, there are nearly 30 million “forgotten” 401(k) accounts holding about $1.65 trillion in assets left behind by job changers. You don’t want to lose track of your money. Another risk: your former employer could change plan providers or investment options without your input, or even terminate the plan (if, say, the company is acquired or goes out of business). If the plan terminates, your money would be forced out (you’d have to roll it over at that time). Also, you generally cannot take a loan from an old 401(k) as a non-employee, and you won’t be able to make new contributions. You might have less control – for example, some plans only allow you to change investments quarterly or have other quirks.

• Fees: Check if your old plan has any account maintenance fees for ex-employees. Some plans charge former employees a small quarterly fee or higher expense ratios, etc. Others don’t differentiate. If the plan is large and low-cost, keeping money there could be cost-effective. But if it’s a high-fee plan, you probably don’t want to leave your money in it indefinitely.

In short, leaving the 401(k) where it is can be a temporary parking spot or a longer-term solution if the plan is good. Just remember to monitor it. Many people leave an old 401(k) initially due to indecision, and then later consolidate it into an IRA or new plan once they get around to it.

There’s nothing wrong with waiting a bit until you’re comfortable with your new job and have researched your options – just don’t forget about it entirely.

Option 2: Roll Over to Your New Employer’s 401(k)

If your new employer offers a 401(k) (or 403(b) or similar plan), you may have the option to roll your old 401(k) into your new plan. This means your retirement savings move into the new employer’s plan, and going forward you’ll have one larger account in the new plan.

• Process: First, verify that your new employer’s plan accepts roll-in contributions (most 401(k) plans do, but a few might not). You might need to wait until you’re eligible to participate in the new plan (some companies have a waiting period like 30 or 90 days of employment before you can contribute or roll money in). Once eligible, you’d contact the new plan administrator and initiate a rollover request. Typically, you’ll fill out a form providing information about your old plan. Then, your old plan will either send a check directly to the new plan or send it to you payable to the new plan (for example, a check made out to “Trustee of XYZ Corp 401k Plan FBO [Your Name]”). You forward that to your new plan administrator. Some direct rollovers can be done electronically if both plans are handled by the same provider. Ensure it’s a direct rollover so you don’t trigger withholding or taxes.

• Pros: The big advantage is consolidation – having all your 401(k) money in one place. It’s easier to manage and rebalance one account instead of multiple. Your savings continue to grow tax-deferred without interruption. With a larger balance in one plan, you might also qualify for lower fees or more investment options in certain plans (some plans have breakpoints for lower expense ratios if you have more assets, though that’s not common at the participant level). Importantly, by moving into another 401(k), your money stays under ERISA protection (good for creditor protection as discussed). If you plan to stay at this new job long term, it’s convenient to watch your old savings and new contributions together. Loans: Once the money is in your new employer’s 401(k), it’s generally eligible for a 401(k) loan from that plan (if the plan allows loans), something you couldn’t do if the money sat in an IRA. If you think you might need to borrow from your retirement funds, consolidating into the new 401(k) could preserve that option. Also, if you work beyond age 73, having all your 401(k) money in your current employer’s plan can let you delay Required Minimum Distributions (RMDs). (Under current law, RMDs from a 401(k) can be postponed until you retire, if you’re still working past RMD age and you don’t own >5% of the company. But IRA money would still require RMDs. So rolling old IRA/401k money into your current 401k can avoid forced withdrawals while you’re still working.)

• Cons: Not all 401(k) plans are created equal. Your new employer’s plan might have higher fees or limited investment options compared to your old plan or an IRA. Some 401(k)s offer only a handful of mutual funds, which might not align with your preferences. If you roll everything into the new plan, you’re stuck with those choices for that chunk of money. Another possible downside is administrative complexity – the rollover process can involve paperwork and waiting. During the rollover, your money might be out of the market for a brief period, which could be a risk if the market moves (though direct custodian-to-custodian transfers usually happen quickly, maybe a week or two). Also, consider whether you plan to stay at the new job: if this is a short-term stint, you might end up rolling again in a year or two, which is extra work. Some plans also have weird rules like charging for roll-in processing (rare, but check). Finally, one subtle con: if your new plan has poor performance or if the company were to have financial issues, your retirement is more hitched to that one system (though your money is always separate from company assets in a retirement trust, a troubled company might have less attention on plan quality).

Overall, rolling into the new 401(k) often makes sense if the new plan is of good quality. Many people appreciate having one 401(k) account instead of a trail of accounts at past employers.

It can also strengthen your sense of progress – seeing a bigger balance in one place. Just compare the investment options and fees of the new plan versus alternatives. If the new plan is subpar, you might lean towards an IRA rollover instead.

Option 3: Roll Over to an IRA (Individual Retirement Account)

Your third option is to take your 401(k) assets and roll them into a Rollover IRA that you control. This moves your money out of an employer-sponsored plan entirely and into a personal retirement account in your name, at a financial institution of your choice (bank, brokerage, mutual fund company, etc.).

• Process: You’ll need to open an IRA (if you don’t have one already) to receive the rollover. It can be a Traditional IRA (to accept pre-tax 401k funds) and/or a Roth IRA (if you are rolling over Roth 401k funds, those must go into a Roth account – more on Roth 401k later). Once the IRA is ready, you request a direct rollover from your 401(k) plan to the IRA. This typically involves giving the 401k plan the IRA account information. They might mail a check to you made out to, for example, “Fidelity Investments FBO [Your Name]” which you then forward to deposit in your IRA. Many providers can now do electronic transfers as well. Just like other rollovers, no tax is withheld if done trustee-to-trustee. If you accidentally get a check made out to you, remember to deposit it into the IRA within 60 days (and be aware they withheld 20%, which you’d have to make up, as discussed). It’s best to avoid that and have it directly to the IRA.

• Pros: The IRA rollover is popular because of the greater control and flexibility it offers. In an IRA, you typically have a wider range of investment options than a 401(k). You can invest in almost anything – individual stocks, bonds, thousands of mutual funds and ETFs, CDs, etc. You aren’t limited to the handful of choices in a 401(k) plan. This means you can tailor your portfolio exactly to your goals. IRAs also allow certain things 401(k)s often don’t, like partial Roth conversions (if you decide to convert some to Roth and pay taxes), or even investing in alternative assets (with a self-directed IRA) if you’re experienced with that. Fees can often be lower in an IRA, especially if your 401(k) was expensive – for example, you could choose a low-cost provider and buy index funds with expense ratios under 0.1%. Another advantage: an IRA is independent of any employer, so it’s one account you can keep for life and continue to consolidate other rollovers into. If you change jobs multiple times, rather than shuffling money from plan to plan, you can funnel each old 401(k) into your rollover IRA. Many Americans do this – hence the vast amount of money that has flowed into IRAs. (In fact, rollover IRAs receive hundreds of billions of dollars each year from 401(k) plans, forming the bulk of IRA assets.) With an IRA, you also have more flexibility with withdrawals in some cases: while you don’t get the age-55 rule, IRAs have their own set of penalty exceptions (for example, IRAs allow penalty-free withdrawals for qualified higher education expenses or up to $10k for a first-time home purchase – exceptions not available in a 401k). That’s not to encourage using retirement money for those, but it’s a flexibility feature. And if it’s a Roth IRA rollover, qualified withdrawals in retirement would be tax-free.

• Cons: The flip side of independence is that IRAs lack some benefits that employer plans have. One major consideration is creditor protection – your rolled-over money in an IRA is not protected by ERISA. In bankruptcy, you have a cap (~$1.5 million) that’s protected, and outside bankruptcy, state laws vary. If you worry about lawsuits or debts, an IRA could be riskier than leaving funds in a 401(k) (as discussed in the state law section). No loan option: Unlike a 401(k), an IRA does not permit loans. So once in an IRA, you cannot borrow from that money at all. If you anticipate possibly needing a loan, keep that in mind. Also, IRAs have RMDs (Required Minimum Distributions) at age 73 (for 2023; this will be 75 in a decade due to Secure Act changes), and no “still working” exception – even if you’re employed, you must start IRA withdrawals by the required age. A 401(k) could let you delay if you kept working. Another con can be overwhelm – having too many investment choices in an IRA can be daunting if you’re not comfortable making investment decisions. Some people prefer the simplicity of a curated 401(k) menu. Additionally, rolling into an IRA could inadvertently affect some tax strategies: for example, if you ever want to do a backdoor Roth IRA (a strategy for high earners to contribute to a Roth via converting a traditional IRA), having a large rollover IRA can complicate the taxes due to the pro-rata rule. Finally, costs: while IRAs can be low-cost, if you’re not careful, you might end up in investments with higher fees or no fiduciary oversight. In a 401(k), plan fiduciaries have a duty to keep costs reasonable; in an IRA, you’re on your own to choose wisely or your broker might try to sell you expensive products.

In summary, rolling to an IRA gives you full control of your retirement money. It’s often the best choice if you value investment flexibility or if your new employer’s plan is not great.

Many experts suggest an IRA rollover unless there’s a specific reason to prefer a 401k (like needing the loan feature or ERISA protection). Just be sure to do your homework on selecting a reputable IRA provider and investment mix.

Once in the IRA, treat that money with the same long-term discipline as before – it can be tempting to take distributions since it feels more “yours” than an employer plan, but remember the goal is to keep it growing for retirement.

Option 4: Cash Out (Withdraw the Money)

The last option – usually the worst for your retirement – is to simply cash out your 401(k) when you leave the job. This means taking a lump-sum distribution, paying taxes and penalties, and using the cash for other purposes.

Unfortunately, as the opening statistic showed, a large number of people do this. About 4.5 to 6.4 million people cash out their workplace retirement plan each year, and roughly 41% of workers who leave a job take some or all of the money out instead of preserving it.

• Process: You inform the plan administrator that you want to withdraw your balance. They may have you fill out a distribution form and choose how to receive the money (check or direct deposit). By law, they will withhold 20% for federal taxes off the top (unless it’s a Roth 401k, in which case they withhold on just the earnings portion). They might also withhold an estimate for state tax. When you file your taxes, the withdrawal will be added to your taxable income. If you’re under 59½ (and don’t qualify for an exception like the Rule of 55), you’ll also owe a 10% penalty on the taxable portion. The plan doesn’t withhold the penalty; you pay it when filing your return. Some plans do a mandatory 20% federal withholding even on Roth 401k withdrawals (they withhold on the earnings which are taxable if not qualified), so read the distribution form carefully.

• Pros: The only real advantage of cashing out is immediate access to cash for short-term needs. If you’re in a dire financial situation (job loss, medical bills, etc.) and have no emergency fund, your 401(k) might be one of the few resources you can tap. Having cash on hand can prevent going into high-interest debt. Another possible “pro” is that if the amount is small, some people would rather use it than bother rolling it over. For instance, if you have $800 in a 401(k) from a part-time job, you might cash it out (the plan might do so automatically if under $1k anyway). But beyond pressing need or trivial balances, it’s hard to justify cashing out given the consequences.

• Cons: The downsides are significant. Taxes and penalties will eat a large chunk of your money. For example, suppose you have $10,000 in a traditional 401(k) and you decide to cash out at age 30. Federal tax of 20% ($2,000) will be withheld right away, so you’d receive $8,000. Come tax time, that $10k is added to your income. If you’re in the 22% tax bracket, you owe $2,200 in taxes on it (the $2,000 withheld goes toward that, leaving $200 more due). Plus the 10% penalty = $1,000. So net, you’d pay about $3,200 in taxes/penalty on that $10k, leaving you with only ~$6,800 net. State taxes could reduce it further. That’s roughly one-third of your savings gone immediately. The hit can be even worse if the distribution pushes you into a higher tax bracket.

Beyond the immediate loss, the opportunity cost is huge. Money you remove from your retirement account stops growing for your future. Consider that $10,000 left invested could potentially double or triple over time. For example, $5,000 kept in a 401(k) at age 30 could grow to around $38,000 by age 60 at a 7% annual return (and $10,000 would be ~$76,000) – growth you’ll never see if you cash out.

As another data point, a $25,000 withdrawal at age 40 could have grown to $135,000 by age 65 if left invested at 7%. By cashing out, you are robbing your future self of potentially far more money than you receive today.

Cashing out can also have other consequences: it could bump up your taxable income for the year which might reduce eligibility for certain credits or deductions on your tax return. If you’re younger, you’re also resetting the clock on retirement savings – when you do get to your next job, you’re starting from scratch instead of building on what you already saved.

Why do so many people cash out? Sometimes it’s lack of knowledge – they may not realize they can roll it over, or they feel intimidated by the process. Other times it’s financial hardship or the allure of quick money. But for most, it’s a costly mistake. In one study, 85% of people who cashed out took the entire balance – not just a portion – suggesting a clean break but also a loss of all that retirement progress.

If you’re tempted to cash out, think twice. In general, preserve your retirement money for retirement. There are a few narrow situations it might make sense: for instance, if you have a high-interest debt and no other way to pay it, using a small 401k to eliminate 20% credit card interest could be mathematically justified (though you’d still sacrifice future retirement funds).

Or if you’re facing eviction, feeding your family, etc., of course immediate needs come first. But if you have any way to leave that money in a tax-advantaged account, you’ll likely be much better off in the long run.

Bottom line: Cashing out a 401(k) is usually a last resort. Exhaust other options like emergency funds, side income, or even loans before raiding your retirement. And if you do cash out, be prepared for the tax bill and try to save or invest what you receive so it’s not completely lost to consumption.

🗝️ Key Terms and Definitions

Understanding 401(k) transfers comes with a lot of jargon. Here are key terms explained:

• 401(k) Plan: An employer-sponsored retirement savings plan that lets employees contribute a portion of their salary to a tax-advantaged investment account. Traditional 401(k) contributions are pre-tax (tax deferred until withdrawal), while Roth 401(k) contributions are made after-tax (withdrawals are tax-free if qualified). Many employers offer a match – they contribute extra money based on a percentage of your contributions, subject to vesting.

• Vesting: The process by which you earn ownership of employer contributions in your retirement plan. Your own contributions are always yours, but employer matches may vest over time (e.g., 25% per year for 4 years, or 100% after 3 years “cliff”). Fully vested means you have 100% rights to those funds. If you leave before fully vested, you forfeit the unvested portion.

• Rollover: Moving funds from one retirement account to another, e.g., from a 401(k) to an IRA or to another 401(k). Direct rollover (trustee-to-trustee transfer) sends the money directly to the new account without you handling it (no taxes withheld). Indirect rollover means the money is paid to you first; you then have 60 days to deposit it into another retirement account. An indirect rollover triggers 20% withholding and can lead to taxes/penalties if not completed in time.

• IRA (Individual Retirement Account): A personal retirement account you set up outside of an employer. Traditional IRAs are tax-deferred (like a 401(k), taxed on withdrawal), Roth IRAs are tax-free on withdrawal (funded with post-tax money). A Rollover IRA is just a traditional IRA designated to receive rollovers. There are annual contribution limits to IRAs, but rollovers don’t count toward those limits. IRAs often have more investment options but less creditor protection than 401(k)s.

• Direct Transfer vs. Rollover: In everyday language, “rollover” covers both. But technically a direct transfer usually refers to moving IRA to IRA or 401(k) to 401(k) within the financial institutions (also tax-free). A rollover often implies the distribution and deposit action. For simplicity, we used “rollover” for any tax-free transfer between retirement accounts.

• Qualified Plan: A retirement plan that meets IRS and ERISA rules to get tax benefits (401(k), 403(b), 457(b), etc.). “Qualified” means it qualifies for special tax treatment. Rollovers generally occur between qualified plans and IRAs.

• 403(b) Plan: A retirement plan similar to a 401(k) but for non-profit and educational employers. It allows pre-tax or Roth contributions. If you change jobs from a public school (403(b)) to a private company (401(k)), you can usually roll your 403(b) into the new 401(k) or into an IRA, as they are all tax-deferred plans.

• 457(b) Plan: A retirement plan for government employees (and some non-government organizations). It also allows pre-tax and sometimes Roth contributions. A unique feature of governmental 457(b) plans is no early withdrawal penalty at any age once you separate from service. You can roll a 457(b) into a 401(k) or IRA, but be cautious: if you roll 457 money into an IRA/401(k), it becomes subject to the 59½ penalty rules. Some people keep 457 funds separate to retain that flexibility. Conversely, if you leave private for public, you can roll a 401(k) into a governmental 457 plan. Just be aware a non-governmental 457 (offered by some hospitals or NGOs to highly paid staff) cannot be rolled into an IRA or 401(k) by law – those you’d typically have to take as taxable distributions over time.

• Thrift Savings Plan (TSP): If you’re a federal employee or in the military, the TSP is your version of a 401(k). It has traditional and Roth options. When leaving federal service, you can roll TSP to an IRA or possibly to a new employer 401(k). Likewise, private-sector folks who join federal service can roll their 401(k) into TSP. TSP is known for ultra-low costs and a few core funds, so some people leaving federal keep money in TSP or even roll outside money into it for the low fees.

• Pensions (Defined Benefit Plans): If your old job has a traditional pension, that’s a different beast – you usually can’t “rollover” a pension into a 401(k) (unless they offer a lump-sum distribution, which you could roll to an IRA). Our focus here is on defined contribution plans (401(k), 403(b), etc.). But one thing to mention: if you have a cash balance pension (a hybrid that gives a lump sum), those can often be rolled to an IRA or 401(k). The paperwork will specify if it’s eligible for rollover.

• Comparative Summary: Despite these differences, the good news is that the federal rollover rules make most of these transfers possible. The IRS provides a rollover chart outlining what can go where. Generally, 401(k), 403(b), and governmental 457(b) funds can be rolled over interchangeably or to IRAs, as long as you keep pre-tax money in pre-tax status and Roth in Roth. This means if you change jobs across different sectors, you can still consolidate your retirement money. An IRA tends to be the universal catcher’s mitt that can accept any of them (again, segregating Roth vs pre-tax).

Knowing these terms will help you navigate discussions about your 401(k) and ensure you make informed decisions during a rollover or transfer.

Comparing Traditional 401(k), Roth 401(k), and Other Plans

Not all retirement accounts are identical. It’s important to recognize the differences between a Traditional 401(k) and a Roth 401(k), as well as how other employer plans like 403(b)s and 457 plans stack up. These differences can affect how you transfer funds when changing jobs:

Traditional vs. Roth 401(k): A Traditional 401(k) is funded with pre-tax dollars – contributions reduce your taxable income now, and both contributions and earnings are taxed when you withdraw in retirement. A Roth 401(k) is funded with after-tax dollars – you pay taxes on contributions now, but qualified withdrawals (generally after age 59½ and meeting a 5-year rule) are entirely tax-free. Many employers offer both options within the 401(k) plan. When you change jobs:

• Rolling Over Traditional 401(k): These funds must go into another tax-deferred account. You can roll a traditional 401(k) into a Traditional IRA or into a new employer’s 401(k)/403(b) as pre-tax money. If you accidentally rolled it to a Roth IRA, that would count as a Roth conversion and you’d owe taxes on the entire amount – so don’t do that unless you intend to convert. Normally, direct rollovers keep pre-tax money in pre-tax accounts.

• Rolling Over Roth 401(k): Roth 401(k) money should go into a Roth IRA or a Roth 401(k) at the new employer. It’s important to keep Roth money separate from traditional. Typically, your old plan will actually split the distribution: they might send your Roth portion to a Roth IRA and the rest to a traditional IRA, or cut two checks. If your new employer’s plan has a Roth 401(k) and accepts rollovers, you could roll your Roth 401(k) into that. One key benefit: Roth IRAs have no RMDs at age 73+, whereas Roth 401(k)s do have RMDs (starting at the same age as others, though the SECURE 2.0 Act will eliminate Roth 401(k) RMDs from 2024 onward). So many retirees roll their Roth 401(k) to a Roth IRA to avoid future RMDs. In any case, the rollover process ensures Roth stays Roth (tax-free growth preserved). Just be careful not to co-mingle Roth and Traditional in a way that creates a taxable event.

Other differences: If you have after-tax (non-Roth) contributions in your 401(k) (some plans allow contributing above the limit as after-tax), those can be rolled into a Roth IRA as a conversion (since taxes were already paid on contributions) – that’s a niche case called a “mega backdoor Roth” often. But most people just have the standard pre-tax and maybe Roth buckets.

403(b) Plans: These are akin to 401(k) plans for non-profits, schools, hospitals, churches (although churches often have 403(b)(9) which is a variant). A 403(b) might invest in annuities or mutual funds. If you move from a 403(b) employer to a 401(k) employer or vice versa, or leave a 403(b) job, rollover rules are similar.

You can roll a 403(b) into a 401(k) (the IRS classifies both as eligible employer plans) or into an IRA, and you can roll a 401(k) into a new 403(b) similarly. One nuance: 403(b) accounts can be split between annuity contracts – when rolling over, ensure all pieces get moved. Also, some 403(b) plans have Roth 403(b) options now, same deal as Roth 401(k). In terms of early withdrawal: 403(b) also has the age 55 rule if you separate from service at 55+.

457(b) Plans: There are two types: governmental and non-governmental. Here we’ll focus on governmental 457(b) since those can be rolled over. Government 457(b) plans (for state or local government employees) are similar to 401(k) but with a unique perk: no early withdrawal penalty at any age for distributions after separation. If you have a 457(b) and you move to a private sector job with a 401(k), you can roll your 457 into the 401(k) or an IRA. But consider not doing so if you might need the money early – once rolled into a 401(k)/IRA, the 10% penalty would apply on that money if taken before age 59½. Some people keep their 457 separate specifically to retain that flexibility.

Conversely, if you leave private for public, you can roll a 401(k) into a governmental 457 plan. Just be aware a non-governmental 457 (offered by some hospitals or NGOs to highly paid staff) cannot be rolled into an IRA or 401(k) by law – those you’d typically have to take as taxable distributions over time.

Thrift Savings Plan (TSP): If you’re a federal employee or in the military, the TSP is your version of a 401(k). It has traditional and Roth options. When leaving federal service, you can roll TSP to an IRA or eligible employer plan; TSP accepts roll-ins from IRA/401(k) as well.

(The above table outlines common scenarios. Always verify specific plan rules and IRS guidelines for your situation.)

As you can see, the main difference between plans is who offers them and some nuances in withdrawal rules, but rollover compatibility is broad. Traditional 401(k), 403(b), and 457(b) all create the same kind of pre-tax money that can merge together. Roth accounts likewise merge together.

Knowing these differences helps you make informed choices. For instance, if you value the no-penalty feature of a 457, you might keep that separate. If you have a Roth 401(k) and you switch jobs, you might decide to roll it into a Roth IRA to avoid future RMDs.

⚠️ Common Mistakes to Avoid in 401(k) Transfers

Transferring a 401(k) can be straightforward, but there are pitfalls that can cost you money or delay the process. Learn from these common mistakes and ensure your rollover is smooth:

• Cashing Out “Just Because”: As discussed, one of the biggest mistakes is impulsively cashing out your 401(k) when changing jobs. The tax hit and penalties can erode a large chunk of your savings, and you lose the future growth. Unless you absolutely need the funds to stay afloat, avoid cashing out. Even if the balance seems small, consider rolling it over – small amounts can grow significantly over time. Don’t treat your 401(k) like a bonus paycheck when you leave a job; treat it as untouchable retirement money. (Remember the 😱 shockingly high 41% cash-out statistic – avoid being part of that if you can help it.)

• Missing the 60-Day Deadline: If you do an indirect rollover (or if your plan sends the check to you by mistake), you must deposit the funds into a new IRA/401(k) within 60 days. Missing this deadline means the distribution becomes taxable and potentially penalized. This is an easy mistake if you leave the check sitting on your desk or if mail gets delayed. Ideally, avoid indirect rollovers altogether. But if you find yourself holding a check, deposit it into a proper retirement account as soon as possible. Note: The 60 days counts from when you received the money, not when it left the old plan. The IRS can waive the 60-day rule only for specific hardships (like hospitalization, lost check due to disaster, etc.), and you’d have to apply for relief. It’s much simpler to just get it done on time.

• Not Replacing Withheld Amount (Indirect Rollover): If 20% tax was withheld and you still plan to rollover via the 60-day route, you must come up with that 20% from other sources to roll over the full amount. People often don’t realize this. For example, you had $50,000, got a check for $40,000 after 20% withholding. To rollover the entire $50k to an IRA and avoid taxes, you’d need to put in the $10k from your own pocket and later claim the $10k withholding on your tax return to get a refund. Many fail to do this and end up effectively only rolling over $40k (the rest being treated as a distribution). That $10k then becomes taxable + penalty. This is a costly mistake. Solution: Always do direct rollover. But if you’re in the situation, be prepared to cover the gap.

• Rollover Check Made Out to You (and sitting too long): Sometimes, despite requesting a direct rollover, a plan might send the check to you (the participant) but made out to the new custodian (“FBO” format). People might be confused and not forward it. Or worse, the plan mistakenly issues it to your name. If you get a check, read the payee immediately. If it’s made out to you personally, the 60-day clock and withholding apply. If it’s made to the new institution, mail it to them promptly; it’s as good as a direct rollover, but not if you leave it in a drawer!

• Forgetting About Old Accounts: It’s surprisingly common for people to lose track of their retirement accounts after leaving a job. With address changes and busy lives, old 401(k)s can become “orphaned.” The mistake here is lack of organization. Always keep a record of your former employer’s plan contact or login, and update your address/email if you move. If you don’t want to actively manage an old account, consolidate it via rollover rather than leave it and forget it. Also, watch out for mail indicating your old account was moved (for instance, to a safe harbor IRA) – many ignore these notices not realizing what they are.

• Not Checking Fees and Investments: Failing to do due diligence on where you roll your money is a mistake. Some blindly roll into an IRA without comparing costs, or conversely roll into a new 401(k) without checking if it has higher fees. You should compare the expense ratios of investments and any account fees. If your old 401(k) had super low-cost funds and your new one is full of high-cost funds, you might be better in an IRA where you can choose low-cost funds. On the flip side, if your old plan had high fees, rolling to either the new plan or an IRA with lower fees will save you money. Don’t assume all plans/IRAs are equal. Shop around if going the IRA route – you have the power to choose a low-fee provider.

• Ignoring the Roth component: If you have a Roth 401(k) component, make sure it’s handled correctly. A mistake would be rolling a Roth 401(k) into a traditional IRA – that would be a tax nightmare (the Roth money would become taxable). Plans usually won’t do that if paperwork is correct, but if done incorrectly it can be an irreversible error. Also, if you roll a Roth 401(k) to a Roth IRA, remember that the 5-year rule for tax-free withdrawals in the Roth IRA might apply (if you never had a Roth IRA before, the rollover starts the clock for being able to withdraw earnings tax-free). It’s not a huge issue but something to note: even if you had the Roth 401(k) for 5+ years, that doesn’t carry over to the Roth IRA’s 5-year aging requirement unless it’s a qualified distribution at time of rollover. Just a nuance to be aware of so you don’t accidentally take a Roth IRA withdrawal too soon. The mistake here is minor – just don’t withdraw from the Roth IRA until it’s qualified.

• Overlooking the Rule of 55: If you left your job at age 55 or later and you think you might need some of that money before 59½, a mistake would be immediately rolling everything to an IRA. As mentioned, the Rule of 55 allows penalty-free withdrawals from that employer’s 401(k). Once it’s in an IRA, that option is gone (IRAs require 59½ or special exceptions). So a savvy move, if you need access, is to take what you need from the 401(k) first (or leave some funds in the 401(k) to draw on as needed under Rule of 55) and possibly roll the rest. Or leave it all in the 401(k) for flexibility. Many people don’t know about this rule and roll over, then realize they locked themselves out of penalty-free access, which could force them to do 72(t) SEPP payments or pay penalties. So, know the rules before moving money in that age range.

• Rolling Over Company Stock Without Considering NUA: If you have employer stock in your 401(k) and it has appreciated a lot, a mistake would be blindly rolling it into an IRA. You might lose out on the NUA tax break (Net Unrealized Appreciation) that could let you pay capital gains tax (often lower) on the stock’s growth instead of income tax. The proper strategy could be to take a lump-sum distribution of the stock into a taxable brokerage (pay tax on cost basis only) and rollover the rest. This is complex, so the mistake is not seeking advice if you have company stock. If you don’t have employer stock, no worry. If you do, talk to a financial or tax advisor about NUA before rolling.

• Procrastinating Indefinitely: It’s fine to take a few months to figure out what to do with your old 401(k). But waiting too long (years) can be a mistake. In the meantime, you might forget details, lose track, or the plan might change. Also, if the money is just sitting in a default fund, it might not be invested optimally for your needs. While “do nothing” is an option, set yourself a reminder to revisit the decision. Don’t just leave the old 401(k) out-of-sight, out-of-mind forever, especially if it’s not in great investment options.

By being aware of these pitfalls, you can avoid costly errors. The key is to stay informed, act promptly but not rashly, and seek advice for complex situations.

A 401(k) rollover is a critical financial transaction – double-check the details, follow up with institutions, and you’ll get through it with your nest egg intact and growing.

Pros and Cons of Rolling Over Your 401(k)

Should you roll over your 401(k) or not? The decision can be clearer by weighing the advantages and disadvantages side by side:

As shown, rolling over has clear benefits in control and simplicity, but you should be mindful of what you might give up (like certain protections or features). Many people decide the pros outweigh the cons, especially if they aren’t utilizing those unique features of a 401(k). But it’s not one-size-fits-all – evaluate your specific situation.

Legal and Regulatory Highlights

While 401(k) rollovers are mostly a routine personal finance matter, there have been some legal rulings and regulations in recent years affecting them:

• Fiduciary Advice Rule for Rollovers: The Department of Labor (DOL) has been concerned that some financial institutions may encourage employees to roll over 401(k)s into IRAs not because it’s best for the participant, but because it earns the institution fees. In 2020, the DOL implemented rules (and a related exemption) that hold advisors to a higher standard when advising on rollovers, effectively treating many rollover recommendations as fiduciary advice. This means advisors should document why a rollover is in your best interest, considering fees and alternatives. However, parts of this have been legally challenged. In a notable 2022 court case, a federal court found that one provider did not act as an ERISA fiduciary merely by soliciting participants to roll over funds into its own IRA products. This suggested that, at least for that time frame, such solicitations weren’t always subject to fiduciary liability. The legal landscape here is evolving – some rules have been vacated by courts in the past. For you, the takeaway is: if someone is urging you to roll over (especially a salesperson), be aware they might have a conflict of interest. Don’t hesitate to question fees and ensure it truly benefits you, regardless of these shifting regulations.

• State Unclaimed Property Laws: Occasionally, old retirement accounts of missing participants get turned over to state unclaimed property funds. Lawsuits have occurred around fiduciaries transferring 401(k) money to states when they can’t find the owner. It’s a reminder legally that you should keep your contact info updated. Under ERISA, plan fiduciaries must make diligent efforts to find you before handing money to the state. This isn’t a court ruling per se but a compliance area – know that if you lose touch, eventually your account could be considered “abandoned” and land at the state treasury (you can reclaim it, but that’s extra paperwork).

• ERISA Preemption of State Laws: Several Supreme Court cases have reinforced that ERISA rules trump state laws when it comes to retirement plans. For instance, even if state law tries to change beneficiaries after a divorce, the plan must follow the beneficiary form on file unless a QDRO says otherwise. This is a reminder to update your beneficiaries when life events happen. It’s not directly about rollovers, but if you roll over to an IRA, note that IRAs are not ERISA – state law and federal IRA rules apply (so beneficiary rules differ; IRAs will follow state law in some respects, but generally beneficiary designations still rule there too).

• Court Cases on Plan Fees: There have been numerous class-action lawsuits against employers for having high-cost investments in 401(k) plans. How is this relevant? If your old plan was part of such a lawsuit or had high fees, rolling over to a lower-cost environment could benefit you. It’s always good to be aware if your former employer’s plan was under scrutiny; it might validate a decision to move your money.

• SECURE Act and SECURE 2.0: These are federal legislative changes rather than court cases, but worth noting. SECURE Act 2019 raised the RMD age from 70½ to 72, and SECURE 2.0 (2022) further raises it to 73 (and eventually 75) and increased automatic cash-out limits to $7k. SECURE 2.0 also allows for penalty-free withdrawals for some special cases (e.g., terminal illness, domestic abuse) and even the option to roll 529 college savings into Roth IRAs under certain conditions (unrelated to 401(k), but shows the trend of more flexibility). These evolving laws mean the retirement landscape is constantly improving (mostly). Always keep an eye on new laws that might affect how you can use or move your retirement money.

In essence, the legal backdrop affirms that you have rights with your 401(k) and that those handling your money (plan sponsors, advisors) have duties to act prudently. When in doubt, consult a professional or the plan administrator – and know that regulations are generally in place to facilitate rollovers and protect your interests.

🔀 Options for Your 401(k) When You Change Jobs

This section has already been presented above.

❓ Frequently Asked Questions (FAQs)

Q: Does my 401(k) automatically transfer to my new employer?
No, your 401(k) funds do not move automatically. You must elect to roll them over to your new employer’s plan or an IRA; otherwise, they remain in the old plan.

Q: Can I leave my 401(k) with my old employer when I quit?
Yes, you can leave it if your balance is above the plan’s small account threshold (now $7,000). The money will stay invested in the old 401(k) until you decide to move or withdraw it.

Q: Do I lose my 401(k) if I change jobs?
No, you won’t lose the money you contributed. Your vested balance stays yours. However, unvested employer matches are forfeited. Always check what portion of your balance is vested.

Q: How long do I have to roll over my 401(k) after leaving a job?
There is no strict deadline to do a direct rollover – you can do it years later. The 60-day deadline applies only if you took a distribution payable to yourself.

Q: Will taxes be withheld if I roll over my 401(k)?
No, if you do a direct rollover, no taxes are withheld. If you take the money first (indirect rollover), 20% will be withheld for taxes, which you’d have to replace to rollover fully.

Q: Is there a fee to rollover a 401(k)?
No, typically the plan does not charge a fee to process a rollover. The new IRA or 401(k) usually has no fee to accept it. Just watch for any wire fees or minimal account fees.

Q: Can I roll over a 401(k) into a Roth IRA?
Yes, but only if you pay taxes on the amount (this is a Roth conversion). If it’s a traditional 401(k), you’ll owe taxes on rolling to a Roth IRA. A Roth 401(k) can be rolled to a Roth IRA tax-free.

Q: What happens if I have less than $1,000 in my 401(k)?
If you leave the job, the plan can cash out balances under $1,000. They might send you a check (with taxes withheld). To keep it tax-deferred, deposit that into an IRA quickly.

Q: Are there any reasons to not roll over my 401(k)?
Yes. If your old plan has very low fees or special investment options, you might keep it. Or if you’re 55 and may need the money, leaving it in the 401(k) allows penalty-free withdrawals (Rule of 55).

Q: Can I combine multiple old 401(k)s into one account?
Yes, you can roll over multiple old 401(k) accounts into a single IRA or into your current employer’s 401(k), consolidating them for easier management.

Q: Will my loan on my 401(k) transfer to the new plan?
No, 401(k) loans generally don’t transfer. You must repay the loan when leaving (or shortly after), otherwise the outstanding balance is treated as a distribution (taxes and penalties apply).

Q: If I move to another state, does it affect my 401(k) rollover?
No, moving states doesn’t affect the rollover process. The rollover is federal. Just be mindful of address updates and future state tax rules when you eventually withdraw in retirement.

Q: Can I split my 401(k), roll some and cash out some?
Yes, you often can. You might roll over most of it and take a small portion in cash. Keep in mind any amount cashed out will be taxed and penalized if you’re under 59½.

Q: Should I roll over to my new 401(k) or to an IRA?
It depends. Yes, if your new 401(k) has great low-cost funds and you want simplicity, rolling to it is good. No, if the new plan is poor or you want more investment choices, an IRA may be better.

Q: Does a rollover count towards my IRA contribution limit?
No, rollover deposits do not count as contributions. You can roll over $100,000 and still contribute new money up to the annual IRA limit separately (if eligible).

Q: Will I get penalized if I don’t do anything with my old 401(k)?
No, there’s no penalty for leaving it in the old plan. Just ensure the plan doesn’t force it out (if under $7k). You can decide to roll it over later at any time.

Q: Can I roll over a 401(k) while still working at that job?
No (in most cases). As long as you’re with the employer, you usually can’t roll out the 401(k) unless you reach 59½ or qualify for an in-service withdrawal. Rollovers are typically for after you leave.

Q: Do I need to consult a financial advisor for a rollover?
No, you can do it yourself. It’s a straightforward process with your plan and broker. Yes if you have complexities like company stock (NUA) or large amounts and need investment guidance – an advisor can help avoid pitfalls.

Q: Will my new 401(k) accept a rollover from an IRA?
Often yes, many 401(k) plans allow “roll-in” from IRAs. If you rolled old 401(k) to an IRA and then change your mind, you might move that IRA into your new 401(k) (only pre-tax IRA money is eligible, not Roth IRA).

Q: Are 401(k) rollovers reversible if I change my mind?
No, once a rollover is done, you generally can’t undo it (especially indirect ones beyond 60 days). However, you could roll from IRA to new 401(k) later if desired. Plan carefully before moving.