What Happens to My 401(k) Plan If I Switch Jobs?

Estimated reading time: 3 minutes

When you feel it’s time to change jobs so you can live up to your fullest potential, there are some lingering questions that may keep you hesitating. One of these is typically about what happens to your retirement savings when you switch companies. It’s your money and you need to be aware of how you can get access to it when you make the switch. 

There are typically four ways in which you can deal with a 401(k) retirement plan when you switch employers. Each one of these comes along with their own benefits and their own downfalls. We encourage you to weigh all of the options before making a final decision, so you don’t regret your decision later down the road. Let’s take a look at what these options are. 

1.) Liquidate For Cash

The first option you will always have is to liquidate your 401(k) to receive a payment in cash. This comes with the benefit of receiving your savings in cash. The downfall of this approach is you are subject to State and Federal Withholding Taxes and possibility an early withdrawal penalty. The Federal Withholding Tax is 20 percent of the amount in the account and the State requirements differ. If you are under the age of 59.5, you are subject to a 10 percent early withdrawal penalty when you cash out.

2.) Rollover To Your New Employer

Most companies will allow you to rollover your 401(k) from your previous employer. You should check with your new employer to ensure this is an option for you. With this option, you don’t have to worry about paying taxes just yet or any sort of withdrawal penalty. 

3.) Rollover Into A Traditional IRA 

If your new employer doesn’t allow you to rollover your 401(k) from your old employer, you have another option. You can rollover your existing 401(k) into a traditional IRA account. This is also a feasible option for those who simply don’t like their new employer’s 401(k) funding options. By rolling your money over into an IRA, you have the added option of choosing from a larger scale of investing options. Realize that once you rollover your old 401(k) into an IRA account, you probably won’t be able to roll it back over into a 401(k) account in the future. This is simply due to the fact that many 401(k) plans don’t accept IRA rollovers. 

4.) Leave Your 401(k) With Your Old Employer 

Depending on the options you have with your old employer, they may allow you to keep your 401(k) with them. This is typically under the assumption that the account is left as-is, meaning no more contributions can be made. This is always an option you can look into if you are not quite sure what you want to do with your 401(k) yet. 

Understanding more about 401(k) accounts and how they operate is the key to making them work for you. Anytime you switch employers you should always consider what you want to do with your existing 401(k). Be sure to assess your options above and make the best choice depending on your situation.