The farewell cake gets eaten. The laptop goes back to IT. And somewhere in the pile of exit paperwork sits a question most people push to “later”: what happens to the 401(k)?
Later is fine, up to a point. The money stays put when you hand in your badge; nothing evaporates. What you eventually do with it, though, and how carefully you do it, can swing thousands of dollars in taxes and penalties. Sometimes more.
Your four options, in plain English
Ask FINRA, the brokerage industry’s regulator, and you’ll get the same four paths everybody lists:
- Leave it in your old employer’s plan, if that plan lets you.
- Move it into your new employer’s plan, assuming it takes rollovers.
- Roll it into an IRA, new or existing.
- Cash it out.
| Option | Taxes now? | Good for | Watch out for |
|---|---|---|---|
| Leave it in the old plan | No | A plan with low fees and good funds | Forgetting about it; small balances may be forced out |
| Roll to new employer’s plan | No (if done directly) | Keeping things in one place | New plan’s fees and fund menu |
| Roll to a traditional IRA | Generally no current tax if done as a proper rollover; moving pre-tax money to a Roth IRA is generally taxable | More investment choices | Account fees; losing the “rule of 55” |
| Cash out | Yes, plus a possible 10% additional tax | Genuine emergencies only | Shrinking your retirement savings for good |
Which of the first three wins? The irritating answer: it depends. Fees matter, so does the fund menu, and so does how much babysitting you’ll put up with.
Check what’s actually yours: vesting
Before you decide anything, log in and look for the word “vested.”
The money you put in from your paycheck is always 100% vested. It’s yours. The employer match is a different story. Matching money often comes with a wait. For many regular matching contributions, the longest schedules allowed are a 3-year cliff (nothing, then everything) or a 2-to-6-year graded one (a slice each year). Plans may vest faster, though, and some contribution types follow different rules.
Three months away from a vesting date? Find that out before you pick your last day. Sometimes that gap is worth real money. Sometimes it’s pocket change. You can’t tell until you check.
For more on reading the fine print before you accept a new role, see our job offer letter checklist.
Direct rollover or the 60-day kind?
This is where people lose money without noticing.
Direct rollover. Your old plan sends the money straight to the new plan or IRA. For a direct rollover from a traditional 401(k) to a traditional IRA or another eligible pre-tax employer plan, federal withholding generally does not apply and the rollover itself is generally not taxable. No deadline drama. On your Form 1099-R it shows up with code G and a taxable amount of zero. (Sending pre-tax money to a Roth IRA is different: that’s a conversion, and it’s generally taxable.)
Indirect (60-day) rollover. The plan pays you, and you have 60 days from the date you receive it to deposit it into another plan or IRA. The catch: the plan must withhold 20% for federal income tax. Want the whole balance rolled over? Then that missing 20% has to come out of your own pocket. Skip it and the shortfall gets taxed as a distribution, with the 10% additional tax piled on if you’re under 59½.
Run the numbers on a $20,000 account. Check in the mail: $16,000. Withheld: $4,000. To keep the IRS out of it, $20,000 has to land in the new account inside 60 days, which means finding $4,000 of your own. (That withheld $4,000 isn’t lost; it counts toward your tax bill when you file, so it may come back in your refund. Months later.) Who has four grand sitting around after a job change? Not many people.
My take: ask for a direct rollover unless there’s a specific reason not to.
The costly mistakes
Cashing out a small balance “because it’s small.” Before 59½, a withdrawal is generally taxable, and unless an exception applies there’s a 10% additional tax on top. Lose a chunk to taxes on a $3,000 balance and the rest stops compounding. Ouch, twice.
Moving to an IRA at 55-ish without thinking. There’s an IRS exception people call the “rule of 55”: leave your job in or after the calendar year you turn 55, and withdrawals from that employer’s plan skip the 10% additional tax. For qualified public safety employees, and certain private-sector firefighters, special rules can apply at the earlier of age 50 or 25 years of service. IRAs don’t get this break. Move the money to an IRA, and the exception is gone.
Ignoring an outstanding 401(k) loan. Leave with a loan balance and the plan may offset it, meaning the unpaid amount is treated as a distribution. You can still avoid the tax by rolling over that offset amount by your tax filing deadline, including extensions.
Letting a small balance get forced out. Small balances can get pushed out the door once you’ve left. How small? SECURE 2.0 allowed plans to lift the cutoff from $5,000 to $7,000. If yours is over $1,000 and you never gave instructions, it has to land in an IRA opened in your name; at $1,000 or under, the plan can just mail a check. Either way, you’ll want to know where it went.
Mixing up Roth and traditional money. Roth 401(k) money has exactly two possible destinations in a rollover: another designated Roth account, or a Roth IRA. Keep them separate.
Taking “free” advice at face value. FINRA warns that firms recommending a rollover may earn commissions or fees, and that “no fee” accounts usually still carry costs. Brokers have to follow the SEC’s Regulation Best Interest when they recommend a rollover, but you should still compare fees side by side.
If you’ve got company stock
Own shares of the company inside your 401(k)? Pause right there. A special IRS rule, net unrealized appreciation (NUA), can let that growth be taxed as a capital gain rather than ordinary income, though only in particular lump-sum setups. Rolling the stock into an IRA usually gives that up. This one is worth a conversation with a tax professional before you move anything.
That 401(k) from three jobs ago
Forgot one? You’re not the first. SECURE 2.0 created a free Department of Labor search, Retirement Savings Lost and Found (lostandfound.dol.gov), covering private-sector and union plans. You sign in with Login.gov. Our guide to finding unclaimed money with free official searches covers other places to look.
2026 numbers worth knowing
Starting somewhere new? Here’s what the IRS lets you put in for 2026:
| 2026 limit | Amount |
|---|---|
| 401(k) employee contributions | $24,500 |
| Catch-up, age 50 and up | $8,000 |
| Catch-up, ages 60 to 63 | $11,250 |
| IRA contributions | $7,500 |
| IRA catch-up, age 50 and up | $1,100 |
One new wrinkle for bigger earners. Made more than $150,000 in FICA wages from your employer the year before? Starting in 2026, your catch-up contributions generally have to go in as Roth. Final IRS regulations apply in full from 2027.
What to do this week
- Log in to your old plan and write down your balance, your vested amount and any loan balance.
- New employer: does the plan take rollovers? When can you join?
- Fees and funds, three ways: old plan, new plan, IRA. Side by side.
- Moving it? Ask for a “direct rollover,” in those words.
- Cash tight after the switch? Our laid-off checklist is worth a read before you touch retirement money.
Disclaimer: This article is for general educational purposes and is not financial, tax, or legal advice. Plan rules vary, and tax outcomes depend on your situation. Check your plan documents and consult a qualified tax or financial professional before moving retirement money.
Frequently Asked Questions
Is there a deadline to roll over a 401(k) after I quit?
There’s generally no deadline to move the account itself unless your plan forces out a small balance. If the plan pays the money to you, though, you generally have 60 days from receiving it to roll it over.
Do I lose my employer match if I quit before I’m vested?
You can lose the unvested part. Your own contributions are always 100% vested.
Can my old employer cash out my 401(k) without my permission?
Plans can force out small balances, up to $7,000 if the plan uses the SECURE 2.0 limit. Amounts over $1,000 forced out without your instructions must be rolled into an IRA for you.
IRA or the new employer’s plan: which is better?
Neither always wins. Lower fees and better funds count, and so does the rule of 55 if you could leave work around that age. Put both side by side first.
I still owe on a 401(k) loan. Now what?
The unpaid balance may be offset and treated as a distribution. You can generally avoid tax on it by rolling over the offset amount by your tax filing deadline, including extensions.
Sources
- FINRA: Understanding your choices for a 401(k) rollover (www.finra.org/investors/insights)
- IRS: Topic 413, Rollovers from retirement plans (www.irs.gov/taxtopics)
- IRS: Rollovers of retirement plan and IRA distributions (www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions)
- IRS: Exceptions to tax on early distributions (www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions)
- IRS: Retirement topics, vesting (www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-vesting)
- IRS: Plan loan offsets (www.irs.gov/retirement-plans/plan-loan-offsets)
- IRS: Notice 2024-03 (SECURE 2.0 involuntary cash-out limit) (www.irs.gov/pub/irs-drop)
- IRS: Instructions for Form 1099-R (www.irs.gov/instructions)
- IRS: Topic 412, Lump-sum distributions (NUA) (www.irs.gov/taxtopics)
- IRS: 401(k) limit increases to $24,500 for 2026 (www.irs.gov/newsroom)
- IRS: Final regulations on Roth catch-up rule (www.irs.gov/newsroom)
- FINRA: Regulatory Notice 13-45 (www.finra.org/rules-guidance/notices)
- SEC: Regulation Best Interest FAQ (www.sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/faq-regulation-best)
- U.S. Department of Labor: Retirement Savings Lost and Found (lostandfound.dol.gov)
- IRS: Issue snapshot, vesting schedules for matching contributions (www.irs.gov/retirement-plans/issue-snapshot-vesting-schedules-for-matching-contributions)
- IRS: Internal Revenue Bulletin 2026-06 (public safety employee exception: age 50 or 25 years of service) (www.irs.gov/irb)
