How to Roll Over a 401(k) When You Leave a Job
You left your job. Congrats — or condolences, depending on the circumstances. Either way, you've got a 401(k) sitting at your old employer and you need to decide what to do with it. Most people leave it there forever because the rollover process sounds complicated. It's not. It takes about 30 minutes and it could save you thousands in fees over time.
Your Four Options
1. Leave It Where It Is
You can do nothing. Your old 401(k) stays invested in whatever funds you had. This is fine short-term, but you can't contribute to it anymore, and some employer plans have higher fees than what you'd pay in an IRA. You also end up with retirement accounts scattered across multiple providers, which makes managing your money harder.
2. Roll It Into Your New Employer's 401(k)
If your new job has a 401(k), you can transfer the old one into it. This consolidates your accounts but limits you to whatever funds the new plan offers — which may or may not be good.
3. Roll It Into an IRA (Usually the Best Move)
Open a traditional IRA at Fidelity, Vanguard, or Schwab and transfer the money there. This gives you access to thousands of low-cost index funds and ETFs instead of the limited menu in a 401(k). You get more control, typically lower fees, and everything in one place.
4. Cash It Out (Almost Never Do This)
You can withdraw the money, but you'll pay income tax on the full amount plus a 10% early withdrawal penalty if you're under 59½. On a $50,000 balance, that's roughly $15,000-$20,000 lost to taxes and penalties. This is almost always the wrong move.
How to Do the Rollover
Call your new IRA provider (Fidelity, Vanguard, etc.) and tell them you want to do a "direct rollover" from your old 401(k). They'll give you a form or walk you through it online. The key phrase is direct rollover — this means the money goes straight from the old plan to the new IRA without you touching it. No tax consequences, no penalties.
Avoid an "indirect rollover" where they send you a check. If you go that route, you have 60 days to deposit it into an IRA or it counts as a taxable distribution. Plus they withhold 20% for taxes upfront, which you'd have to make up out of pocket and then reclaim when you file.