Reviewed September 2026.
Leaving a job does not force one 401(k) move. Most people choose among four paths: leave the balance in the old plan (if allowed), roll to an IRA, roll to the new employer’s plan, or cash out. Cash-out is usually the expensive option. Direct (trustee-to-trustee) rollovers are the clean way to move money without an accidental taxable distribution.
IRA paperwork detail: 401(k) to IRA rollover checklist. Vesting before you resign: Employer match vesting. Cash-flow shock: Sudden job loss.
What are the four job-change paths?
| Path | Often fits when | Watch-outs |
|---|---|---|
| Leave in old plan | Balance is large, fees are low, you like the funds | Old employer may force out small balances; you juggle another login |
| Roll to IRA | You want fund choice and one account for old plans | Indirect 60-day rollovers and withholding traps |
| Roll to new plan | New plan has strong funds/low fees, or you want loans/creditor rules of a 401(k) | New plan must accept rollovers; compare fees first |
| Cash out | Rarely; only after modeling tax and penalty | Income tax + possible 10% early-withdrawal penalty before 59½ |
Account-type map: Roth IRA vs 401(k) starter.
What should I do before I pick a path?
- Confirm vested balance only. Unvested match can disappear when you leave (Vesting).
- Check an outstanding 401(k) loan. Separation can make the unpaid loan taxable (401(k) loan risks).
- Separate pre-tax and Roth 401(k) buckets. Pre-tax usually rolls to a traditional IRA or pre-tax 401(k); Roth 401(k) to a Roth IRA or Roth 401(k). Converting pre-tax dollars to Roth is a taxable event (Roth conversions).
- Compare expense ratios and admin fees in old plan vs new plan vs a low-cost IRA brokerage.
- Prefer a direct rollover payable to the new custodian FBO you, not a check payable to you.
What does cash-out actually cost?
Worked example
Vested balance $18,000, age 34, 22% federal marginal bracket (illustrative), state tax ignored.
- Optional 20% mandatory withholding on an eligible rollover distribution paid to you can send $3,600 to the IRS even if you meant to redeposit within 60 days (you must make up that $3,600 from other cash to roll the full $18,000).
- If you keep the cash, federal tax on $18,000 at 22% ≈ $3,960, plus a 10% early-withdrawal penalty ≈ $1,800, leaving roughly $12,240 before state tax and lost compounding.
That is why “I need the money for the move” should be run against emergency cash and a temporary budget before you liquidate retirement dollars.
Checklist
- Download statements and note vested vs unvested, loans, and Roth vs pre-tax.
- Ask the old plan whether small balances are forced out and whether direct rollovers are available.
- Compare old plan vs new plan vs IRA on fees and investment menu.
- Open the destination account first, then initiate a direct rollover.
- Watch for Form 1099-R the next January and keep confirmation letters.
Educational only. Not tax or investment advice. Plan rules, IRS limits, and penalties depend on your situation.