How to Handle Your 401k When You Change Jobs

Don't let your old retirement savings stall. Here are your four options for managing a 401k account when you switch employers.

1. Check your account balance. Log into your current employer's plan website before your final day. Confirm your total vested balance, which is the portion of the account that you actually own. Some employer contributions, like a company match, may have a vesting schedule that requires you to stay for a certain number of years to keep the full amount.
2. Review your four main options. You generally have four choices: leave the money where it is (if the balance is over $5,000), move it to your new employer's 401k plan, roll it over into an Individual Retirement Account (IRA), or take a cash distribution. Taking a cash distribution usually triggers immediate taxes and a 10% penalty if you are under age 59½, so it is rarely recommended.
3. Execute a direct rollover. If you choose to move the funds to an IRA or a new 401k, always request a 'direct rollover.' This process moves the money directly from your old financial institution to the new one. This ensures you never personally touch the cash, which helps you avoid mandatory tax withholding and potential penalties.
4. Consolidate if it makes sense. Moving smaller accounts into one place can make it easier to manage your asset allocation—the mix of investments you hold. Compare the annual administrative fees of your old plan versus a new IRA or your new employer's plan. High fees can erode your long-term growth, so choose the path with the lowest expense ratios.