Saving & investing

What to do with an old 401(k)

When you leave a job you generally have four choices for the old 401(k): leave it, roll it to your new employer's plan, roll it to an IRA, or cash it out. Cashing out is almost always the most expensive option. The right choice among the rest depends on fees, investment options, and your future Roth plans.

5 min read•Updated July 2026•By Austin Hunt, CFP®, CIMA®

Cashing out is the one to rule out first

Taking the money as cash before retirement age generally means income tax on the full amount plus an additional early withdrawal penalty under current rules, and it permanently removes those dollars from tax-advantaged growth.

It is the most common expensive mistake in this decision, usually made because the balance seemed small at the time. Small balances compound too, and a few thousand dollars left alone for thirty years is not a small amount at the end.

Leaving it can be fine, if you actually watch it

There is nothing inherently wrong with leaving a balance in a former employer's plan, particularly if the plan has strong low-cost investment options that you cannot easily replicate elsewhere.

The practical failure mode is neglect. Accounts spread across three former employers rarely get rebalanced, statements go to an old address, and the overall allocation drifts into something nobody chose. If you leave it, calendar it.

Rolling to an IRA gives you the most control

An IRA rollover generally opens up a much wider set of investment options and consolidates things where you can actually see them. For most people the simplicity alone is worth a good deal.

One important wrinkle: a pre-tax IRA balance can complicate a backdoor Roth contribution later, because of how the tax rules treat your IRA balances in aggregate. If backdoor Roth contributions are part of your plan, this is worth thinking through before the rollover rather than after.

01Compare the fees in the old plan against the alternatives
02Check whether the old plan holds anything genuinely hard to replace
03Consider whether a pre-tax IRA balance would affect future Roth plans
04Move funds directly between custodians rather than taking a check
05Update beneficiaries once the account is in its new home

Rolling into the new plan keeps things simple

If your new employer's plan accepts rollovers and has good, low-cost options, consolidating there keeps everything in one place and keeps your IRA space clear for backdoor Roth contributions.

Whichever route you take, ask for a direct transfer between institutions. Having a check made out to you personally introduces withholding and deadline problems that are entirely avoidable.

The short version

Cashing out generally triggers income tax plus a penalty and ends decades of growth.
Leaving the balance is acceptable, but only if you keep actually managing it.
An IRA rollover maximizes control but can complicate future backdoor Roth contributions.
Always move funds directly between custodians rather than via a check to yourself.

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What to do with an old 401(k)

5 min read•Updated July 2026•By Austin Hunt, CFP®, CIMA®

Cashing out is the one to rule out first

Leaving it can be fine, if you actually watch it

There is nothing inherently wrong with leaving a balance in a former employer's plan, particularly if the plan has strong low-cost investment options that you cannot easily replicate elsewhere.

Rolling to an IRA gives you the most control

An IRA rollover generally opens up a much wider set of investment options and consolidates things where you can actually see them. For most people the simplicity alone is worth a good deal.

01Compare the fees in the old plan against the alternatives

02Check whether the old plan holds anything genuinely hard to replace

03Consider whether a pre-tax IRA balance would affect future Roth plans

04Move funds directly between custodians rather than taking a check

05Update beneficiaries once the account is in its new home

Rolling into the new plan keeps things simple

If your new employer's plan accepts rollovers and has good, low-cost options, consolidating there keeps everything in one place and keeps your IRA space clear for backdoor Roth contributions.

Whichever route you take, ask for a direct transfer between institutions. Having a check made out to you personally introduces withholding and deadline problems that are entirely avoidable.