What Should I Do with My Old 401(k)? 4 Smart Options to Consider

If you’ve changed jobs and left a 401(k) behind, you’re not alone. Millions of people do. But what should you do with that account now? In this article, we’ll break down your four main options and the pros and cons of each.

Like many Americans, you've probably left behind at least one old 401(k). It’s easy to overlook. After all, out of sight, out of mind, right? But ignoring an old retirement account could mean leaving money unmanaged, paying unnecessary fees, or simply missing opportunities to grow your savings faster.

In fact, did you know that over 29 million old 401(k) accounts currently sit neglected, holding a total of nearly $1.7 trillion? Each forgotten account averages about $55,000. That's a big chunk of money to leave behind.

If you've got an old 401(k), 403(b), or Deferred Comp (457 plan), here's exactly what you can do—and why making an informed decision is crucial for your retirement future.

Why It Matters: The Cost of Forgetting Old 401(k) Accounts
Leaving your old 401(k) behind isn't always harmless. You could be losing money through:

Higher fees and expenses
Poor investment choices
Administrative neglect
Difficulty accessing your funds later (especially if your old employer changes providers)
The good news? You have several solid options to handle an old 401(k), each with its own advantages and potential drawbacks.

Option 1: Leave It with Your Former Employer
Doing nothing seems simple, and in some cases, it might actually make sense. If your old employer's 401(k) has excellent, low-cost investment options or offers valuable creditor protections, leaving your money there could work temporarily.

However, there are potential downsides:

• Lack of control over future fees or changes in investment options.
• Difficulty tracking multiple accounts.
• Possible forced distribution if the account balance is small (typically under $7,000).
• For most people, consolidating accounts for easier management is a smarter move.

Option 2: Roll It Over to Your New Employer’s Plan
If your new job offers a 401(k), rolling over your old account into the new plan can simplify your life:

• Easier account management with just one plan.
• Potentially lower fees or better investment options, depending on your new employer’s plan.

But before you jump in, remember:

• Not all new employer plans accept rollovers, especially Roth contributions.
• Some new plans might have limited investment options or higher fees than your old plan or an IRA.

Always check your new plan carefully before making the switch.

Option 3: Roll Your Old 401(k) Into an IRA
Rolling your old 401(k) into an Individual Retirement Account (IRA) gives you the most flexibility and control:

• Greater choice of investments.
• Direct control over fees and advisor relationships.
• Potentially lower costs, especially if you choose low-fee index funds or ETFs.

But remember, with greater control comes responsibility. Managing an IRA usually requires more attention, so it’s wise to partner with a trusted financial advisor to ensure you make smart investment choices aligned with your retirement goals.

Option 4: Cash It Out (Usually a Big Mistake!)
While tempting, cashing out your 401(k) is almost always a costly mistake. In fact, about 41% of people who leave jobs cash out their retirement accounts, facing huge penalties:

• You pay income taxes on the entire amount.
• If you're under age 59½, you'll face an additional 10% penalty.
• Mandatory withholding of 20% federal tax often isn't enough, leading to unexpected tax bills later.

Consider this: Cashing out a $50,000 account could easily mean losing up to $20,000 immediately to taxes and penalties. Even worse, you're forfeiting the potential growth. If invested at just 6% annually, your $50,000 could double roughly every 12 years. Cashing out now means missing out on hundreds of thousands of dollars of future growth.

Common Mistakes to Avoid
Here’s what not to do with your old retirement accounts (especially as you get close to retirement):

• Don’t ignore them. Even if you're unsure what to do, don’t leave accounts unmanaged.
• Don’t cash out without considering the severe tax consequences and lost growth opportunities.
• Don’t assume your new employer’s plan is automatically better without comparing fees and investments.

Let's Take Action! Your Next Steps:
Ready to get your old retirement accounts back on track? Here’s exactly how:

1. Track Down Your Old Accounts:
   Use resources like the National Registry of Unclaimed Retirement Benefits or contact past employers directly.
2. Compare Your Options:
   Look closely at fees, investment choices, and administrative simplicity. Decide whether rolling over to your new employer’s 401(k), rolling into an IRA, or leaving it alone makes the most sense.
3. Speak with a Financial Advisor:
   If you're unsure, an experienced advisor can help you evaluate your situation and make informed choices that align with your retirement strategy.

Final Thoughts
Your retirement savings deserve attention. Leaving old accounts unattended can cost you dearly in missed opportunities and unnecessary expenses. Remember, the best retirement plan isn’t the one with the most money or fanciest strategies. It’s the plan you act on.

Make today the day you reclaim your forgotten 401(k) and move confidently toward retirement.

Ready for Your Next Step?

If you’re close to retirement or about to retire, a clear, tax-smart plan makes all the difference. Click below to schedule a quick discovery call – let’s see if we’re the right fit for your goals.

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Before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Please view the Investor Alerts section of the FINRA website for additional information.