What to do with your retirement plan savings when you leave your employer
You’ve been saving for retirement through your 401(k) plan, but now that you’re leaving your employer, what will happen to your savings? The good news is you have several options when you change jobs or retire—but you’ll need to be aware of the opportunities and drawbacks of each option, so you don’t derail the progress you’ve already made toward saving for your retirement.
You have choices for your retirement savings
When you leave your employer, you’ll likely receive information describing your retirement savings options. Your choices may include keeping your money where it is—and you’ll have the option of moving your savings or taking it in cash, also known as taking a distribution. It’s important to understand the pros and cons of all your options and choose carefully because distributions may be taxable—and can make a big and long-lasting dent in your retirement savings. Generally, you’ll have four choices.
| YOUR OPTIONS | OVERVIEW | PROS |
CONS |
| Keep your money where it is | You may be able to keep your retirement money in your previous employer’s plan—check with the plan or employer to confirm. | You can keep your current investment options, and you’ll continue to defer taxes. | You can’t make new contributions, and you may need to repay plan loans. |
| Roll over to an IRA | You can move your money to an IRA; it’s offered by many financial providers and not tied to an employer. | You can make new contributions and add balances from other accounts, and you’ll continue to defer taxes. | You can’t take a loan from an IRA, and a minimum account balance may apply. |
| Roll over to a new employer’s plan | You may be able to transfer your retirement account money to a new employer’s retirement plan—check with the plan to find out. | You can make new contributions and may receive an employer match—plus you'll continue to defer taxes. | The investment choices and withdrawal options are set by the new plan. |
| Take a cash distribution | You can take your retirement plan money in cash—but be sure you know the pros and cons of doing so. | You gain immediate access to your money (minus taxes and possible penalties). | You’ll slow down progress on your retirement savings goal and you’ll likely owe taxes, plus a 10% IRS early withdrawal penalty, if you take the cash before turning age 59½. |
Questions to ask about rollovers and other distribution options
Whether you plan to keep your money right where it is—or you’re thinking about rolling it over to another retirement plan or an IRA, or even taking it in cash—you’ll need to consider some other factors as well. Be sure to ask your retirement plan administrator or financial services provider these questions before making a decision.
Are there any fees?
Retirement plans, and some IRAs, charge operating or custodial fees for recordkeeping and annual maintenance, and they’re required to notify you of all of them. Mutual funds also have costs, expressed as expense ratios—and some may charge exchange fees, if you don’t hold on to the shares for at least a specified period of time.
Which investments are available?
You’ll want to be sure there’s a range of funds across asset classes to help keep your investments diversified. You may also be interested in low-cost options. To find out more about the investments offered, you can search on the investment company’s website to review fund objectives, holdings, and recent performance.
What if I have a loan?
If you’ve taken a loan from your 401(k) and you leave your employer, you may need to repay it in full right away—even if you decide to leave your money in the 401(k) plan. If you don’t repay your loan, it could be considered a withdrawal and cost you in taxes and early withdrawal fees.
Think twice before taking the cash
The cash option may seem appealing right now—but remember why you’ve been saving all this time. Retirement is the chance to do all the things you want. At the very least, you’ll need to be able to cover your living and healthcare expenses. Have you saved enough? When you consider that the average 65-year old could live 20 or more years,1 it makes sense to plan for a long retirement. And Social Security can only go so far, with the average benefit at just over $18,000 per year.1
What’s your distribution strategy?
When you’re leaving your employer, your retirement plan probably isn’t the first thing you’re thinking about, but it does need your attention. You’ve worked hard to save that money, so be sure you know the rules before doing something that could cost you in taxes or penalties—or put a dent in your retirement savings. If you need help with the decision, ask your financial professional to help you decide which distribution option makes the most sense for your situation.
1 “Fact Sheet: Social Security,” U.S. Social Security Administration, June 2020.
Important disclosures
There are advantages and disadvantages to all rollover options; you are encouraged to review your options to determine if staying in a retirement plan, rolling over to an IRA, or another option is best for you.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
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