What to do with an old 401(k): your 4 options, compared
Leave it, move it to your new job, roll it to an IRA, or cash it out. Here's what each one really costs you.
If you've changed jobs a few times, you probably have at least one 401(k) still sitting with a former employer. You're not alone: a 2025 study by Capitalize estimated there are about 31.9 million forgotten or left-behind 401(k) accounts in the U.S., holding roughly $2.1 trillion.
Leaving an account behind isn't a crisis. But it's money you worked for, and the choice you make with it can change what you have at retirement by tens of thousands of dollars. Here are your four options.
Option 1: Leave it where it is
Most plans let you keep your money in the plan after you leave, as long as the balance is over $7,000.
- Good: nothing to do; it stays invested; 401(k)s have strong federal protection from creditors.
- Good: if you left your job in or after the year you turned 55, you can take withdrawals from that plan without the 10% early-withdrawal penalty (the "rule of 55").
- Watch out: it's easy to lose track of, especially after a merger or a move. You're limited to the plan's fund menu, and you may not see what you're paying in fees.
- Small balances: if you have $7,000 or less, the plan can move it out for you, often into an IRA you didn't choose.
Option 2: Move it into your new employer's plan
If your new employer's plan accepts roll-ins, you can combine your old account with your new one.
- Good: one account to watch, and some plans let you borrow against the combined balance.
- Watch out: you're still limited to one plan's investment menu, and nothing in a typical 401(k) menu guarantees you an income.
Option 3: Roll it into an IRA
A rollover IRA can hold almost anything: funds, CDs, or an annuity from an insurance company. When you request a direct rollover, the money moves straight from the old plan to the new account, with no tax and nothing withheld.
- Good: the widest set of choices, including options that protect your money from market drops or pay you a guaranteed income for life.
- Good: you can combine several old 401(k)s into one place.
- Watch out: money rolled into an IRA loses the rule-of-55 penalty exception. IRAs are well protected in bankruptcy, but protection from other creditors depends on your state.
Option 4: Cash it out
This is the choice that costs the most, and it's the one people make most often in a hurry. Here's a simple example for someone who is 45, cashes out $50,000, and is in the 22% federal tax bracket:
| What happens | Amount |
|---|---|
| Account balance | $50,000 |
| 20% the plan must withhold up front | −$10,000 |
| Check you receive | $40,000 |
| Federal income tax owed (22%) | $11,000 |
| 10% early-withdrawal penalty | $5,000 |
| What you keep, before state tax | about $34,000 |
That's roughly a third gone, plus state income tax in most states, and the money stops growing for retirement.
How to choose
Three questions settle most cases:
- Will you need any of this money before age 59½? If yes, and you left your job at 55 or older, keep at least that part in the old plan.
- Do you want this money in the market, or protected? If a big drop in the years right before retirement would change your plans, you may want some of it somewhere that can't lose value when the market falls.
- Do you want it to become a paycheck? If you'd like a set monthly income you can't outlive, part of it can go into an annuity with a lifetime income option.
An annuity isn't for emergency money or for anything you'll need in the next few years: most have surrender charges if you take out more than about 10% a year in the early years. It is built for money you want protected and, often, turned into income later.
See what your old 401(k)s could pay you each month
Use the free calculator, or take the 2-minute plan check and get your Second Paycheck report. No cost, and nothing to sign.