Money guide · Retirement accounts and planning
401(k) rollover options when changing jobs
Compare leaving money in a plan, transferring to another plan, or rolling to an IRA, with attention to costs and tax handling.
How it works
Availability depends on plan rules and the type of money held. A direct rollover sends eligible funds to the receiving arrangement rather than paying them to you first. Indirect rollovers can involve withholding and deadlines. Moving pretax money to Roth treatment can create taxable income, so account labels and transfer instructions matter.
A worked example
Consider an eligible $20,000 pretax employer-plan distribution paid to you with 20% withholding: you receive $16,000. To roll over the full $20,000 under applicable rules, you would generally need to replace the withheld $4,000 from other funds within the required period. This illustrates why delivery method matters; exceptions and distribution eligibility require checking IRS guidance.
What to compare
Compare fees, investments, service, creditor protection, withdrawal features, and whether the new plan accepts the transfer. Identify pretax, Roth, and after-tax components separately. Confirm the receiving account and paperwork before initiating a transfer. Ask administrators about the treatment of loans or other plan features rather than assuming they move with investments.
A common mistake to avoid
Do not assume every distribution is rollover-eligible or that depositing a check makes the transfer correct. A taxable conversion and a tax-deferred rollover are different events. Retain records and required tax forms even when no tax is ultimately due. Verify material tax consequences with a qualified professional before an irreversible distribution.
Is a direct rollover the same as cashing out?
No. A direct rollover moves eligible funds to another retirement arrangement. Cashing out can generate taxes and possibly additional tax depending on the circumstances.
Sources and further reading
Connect this to inflation
Inflation changes the spending power of money over time. Read the related inflation explainer, or adjust a retirement goal for inflation using your own assumptions.