What to Do with an Old 401(k): 5 Options for Your Retirement Plan

When you leave a job, do not forget about the retirement account you have been funding. You still own the vested portion of your account, and making the right decision about what to do with it can have a significant impact on your long-term retirement savings.

This article covers five options for dealing with an old 401(k), 403(b), or 457 plan after leaving a job. The Thrift Savings Plan is very similar to these employer-sponsored retirement plans, but has some additional considerations worth reviewing separately. See our complete guide to TSP options when leaving military or civil service for more details.

Who Owns Your Old 401(k)?

Once you are no longer employed, you cannot make new contributions to your old retirement account. However, you still own it and can control the vested portion of your account.

You are always 100% vested in contributions made from your own paycheck plus their earnings, according to the Employee Retirement Income Security Act (ERISA). No matter what, your employer cannot take those funds away from you. However, any portion of your retirement account that is not vested will be reclaimed by your employer when you leave. Contributions that your employer makes, like matching or profit-sharing funds, are typically subject to a vesting schedule.

How Does Vesting Work?

The two main types of vesting used in workplace retirement plans are:

Graduated vesting — you take ownership of employer contributions on a gradual schedule, such as 20% per year after completing one full year of work. An employee with this schedule would be 20% vested after 2 years, 40% after 3 years, 60% after 4 years, 80% after 5 years, and 100% after completing 6 years of service.

Cliff vesting — you take ownership of all employer contributions at once after a set period, such as 100% after 3 years of service.

Leaving before you are fully vested means you may lose a portion or all of any employer-provided funds that are not vested on your last day. Review your plan’s vesting policy before making any decisions about your departure date.

Option 1: Cash Out Your 401(k)

Cashing out is almost always the worst option. You will owe state and federal income tax on the full withdrawal amount, plus a 10% early withdrawal penalty if you are younger than age 59½.

For example, if you have $10,000 in your 401(k) and your average federal and state tax rate is 22%, you will pay a total of 32% in taxes and penalties, leaving you with just $6,800. That could wipe out every penny of earnings in the account.

Many people cash out simply because they do not realize other options exist. Any of the four remaining options is almost certainly better than cashing out.

Option 2: Do Nothing

Your second option is to leave the account with your previous employer. This can work, particularly if you like the investment options in your old plan, but it comes with some risks worth considering.

You do not know what will happen to the company, the benefits administrator, or the retirement plan over time. If you leave a large company with a robust HR department, staying in the plan may be straightforward. If you worked for a small business, getting accurate information about your old plan years later can be difficult.

It is easier to keep a retirement account with a former employer when you have online access, the ability to check your balance, reallocate investments, and update your contact information on your own. This makes staying in the plan much more practical.

Option 3: Roll Over to a New Workplace Retirement Plan

Your third option is to roll your old account into the retirement plan at your new job. This option makes the most sense if your new plan offers a wide range of low-cost investment options and you want to consolidate your retirement accounts in one place.

For 2026, you can contribute up to $24,500 to a 401(k) or TSP or up to $32,500 if you are age 50 or older, and $35,750 for ages 60 to 63. Rolling your old account into your new plan gives you a single account to manage while potentially capturing any employer matching contributions your new employer offers.

If your new plan has limited investment options or higher fees than you would find elsewhere, consider one of the next two options instead.

Option 4: Roll Over to a Traditional IRA

Rolling your old 401(k) into a Traditional IRA gives you the most investment flexibility, you can choose from almost any stock, bond, ETF, mutual fund, or other investment available at your chosen brokerage. You can open a Traditional IRA at most major brokerages, including Vanguard, Charles Schwab, Morgan Stanley, E*Trade, and many others.

After opening the new IRA, request a direct rollover from your former plan, having the funds go directly to the new IRA avoids taxes and the 20% withholding required on indirect distributions.

Going forward, new IRA contributions are separate from your rollover and limited to $7,500 per year for 2026 or $8,600 if you are age 50 or older. Traditional IRA contributions are made on a pre-tax basis, meaning you typically do not pay taxes on them or on earnings until you make withdrawals in retirement. However, depending on your income and whether you participate in a workplace retirement plan, some IRA contributions may not be tax-deductible.

Option 5: Roll Over to a Roth IRA

Rolling your old 401(k) into a Roth IRA is another option worth considering, particularly if you expect to be in a higher tax bracket in retirement than you are today. Unlike a Traditional IRA, a Roth IRA is funded with after-tax dollars, meaning qualified withdrawals in retirement are completely tax-free.

However, rolling a traditional pre-tax 401(k) into a Roth IRA triggers a taxable event, you will owe income taxes on the full amount converted in the year of the rollover. This is sometimes called a Roth conversion and should be carefully planned with a fee-only financial planner or tax professional before proceeding.

Once the conversion is complete and taxes are paid, the money grows tax-free, and qualified withdrawals are never taxed again. For 2026, ongoing Roth IRA contributions are limited to $7,500 per year or $8,600 if you are age 50 or older. There are also income limits for direct Roth IRA contributions, see our Roth IRA guide for details.

It is just as easy to open a Roth IRA as a Traditional IRA. The rollover process is the same, except for the tax implications.

Which Option Is Right for You?

The right choice depends on your specific financial situation, your current and expected future tax bracket, the quality of your new employer’s plan, and your preferences for investment flexibility and account consolidation. Here is a quick summary:

• Cash out — almost never the right choice due to taxes and penalties

• Do nothing — reasonable if the plan is strong and you have online access, but watch the SECURE 2.0 automatic rollover threshold

• Roll into new employer plan — good if the new plan has low fees and strong investment options

• Roll into Traditional IRA — best for maximum investment flexibility and tax-deferred growth

• Roll into Roth IRA — best if you expect higher taxes in retirement and can afford the tax bill on conversion now

For military members, the TSP offers some of the lowest expense ratios of any retirement account available, and may be worth keeping even after separation rather than rolling into a civilian IRA. See our complete guide to TSP rollover options for military-specific guidance.