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How to roll over your 401(k)

What can you do with a 401(k) after you leave a job? Explore your options.

Tags: Investing, Investments, Portfolio management
Published: February 20, 2019

If you’ve recently left your job, you may be wondering what you should do with the funds in your 401(k). Cash out? Leave them? Transfer them? Roll them into an IRA?

Explore the pros and cons of each option, and consider talking with a financial professional to determine which might work best for you.    

How to roll over your 401(k) infographic
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1. Cash out your earnings

Pro:

 Immediate access to your money

Cons:

❌ Money not available for future retirement needs

❌ May be subject to 20% federal income tax rate

❌ May be subject to 10% federal tax for early withdrawals before age 59½

❌ May be subject to state and local taxes

 

2. Leave them in your old employer’s retirement plan

Pros:

 Retirement investment continues to grow

 Tax-deferred until withdrawal

Cons:

❌ Cannot make additional contributions

❌ Subject to different rules than your new employer’s retirement plan

❌ Investment options limited by old employer

❌ Tax penalty for early withdrawals before age 59½

 

3. Transfer them into your new employer’s retirement plan option

Pros:

 Can continue to make new contributions

✅ Ability to manage rolled-over money and new contributions collectively

 Tax-deferred until withdrawal

Cons:

❌ Investment options limited by new employer

❌ Tax penalty for early withdrawals before age 59½

 

4. Roll them into an outside IRA

Pros:

✅ Not restricted by your employer’s retirement plan

 Tax-deferred until withdrawal

✅ Direct rollovers from 401(k) to IRA will not incur federal income tax

Cons:

❌ Account fees may be higher than employer-sponsored plan

❌ Tax penalty for early withdrawals before age 59½

❌ Indirect rollovers may incur 20% federal income tax

 

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A rollover IRA might be an opportunity to start investing outside of your retirement accounts. Read how in Non-retirement investing: What to invest in.