In November 2021, 4.5 million American workers voluntarily left their jobs, setting the record for the most departures in a single month. Since then, the so-called Great Resignation has yet to show signs of slowing. Another 4.5 million people quit their jobs in March, and another 4.4 million quit in April, according to the Bureau of Labor Statistics. And some believe the Great Resignation isn’t a temporary phenomenon but a permanent change. Job turnover is 20% higher in the remote- and hybrid-working world, and it’s is likely to stay that way, according to Gartner, a technology-research firm.
If you recently left (or are planning to leave) a job with a company that provided a 401(k) plan, you have several options.
Leaving a 401(k) Behind
Most of the time, it’s okay to leave a 401(k) plan with a former employer while you’re transitioning to a new job, says Andrew Rosen, a certified financial planner and president of Diversified LLC, in Wilmington, Del. However, don’t leave the money behind if you have less than $5,000 in your account, which could happen if you didn’t work for your former employer for very long. When the balance is less than $5,000, the company is permitted to cash out your plan. If that happens, you’ll be required to pay federal and possibly state income taxes on the balance, as well as a 10% penalty if you’re younger than 59½.&
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Rolling a 401(k) to a New Employer
If your new employer allows you to roll your money into its 401(k), that may be a good option, particularly if it offers a portfolio of solid, low-cost investments. Large 401(k) plans often offer institutional-class funds that have lower fees than funds you can buy on your own. (That may also be the case with a former employer’s plan.) Plus, you can borrow from your current employer’s plan, which isn’t an option if you leave the money behind or roll it into an IRA.
If you choose to roll the money into your new employer’s plan, make sure you don’t exceed the maximum contribution you can make in a year. Company 401(k) providers are unlikely to communicate with each other and will often let account holders contribute the maximum, even if they’ve rolled over contributions from another employer’s plan. For example, suppose you’re younger than 50 and roll over a plan in which you’ve already contributed $10,000 this year. The maximum you can contribute to your new employer’s plan for the rest of the year is $10,500. If you exceed that amount, you could be subject to a penalty of up to 6% of the excess contribution.
Rolling Over to an IRA
If your new employer doesn’t permit rollovers, or you’re not impressed with its investment options, you can roll your 401(k) into an IRA with any financial services firm.
Rolling over your 401(k) into an IRA could also allow you to build an investment strategy that’s more customized than one you would get in a 401(k) plan. Unlike 401(k) plans, which typically offer a limited number of funds, IRAs offer a broad menu of investment options.
If you go that route, make sure you take advantage of resources provided to you by the financial services firm, such as information about the funds, historical fund performance and manager information, to determine the best lineup for you, says Kailyn Neat, a CFP for Bartlett Wealth Management, in Cincinnati.
As you approach retirement, you’ll probably want to shift to a more conservative asset allocation, and an IRA may offer more fixed-income options than you’ll find in a 401(k) plan. And if you’ve worked for several different employers, rolling the money from each 401(k) plan into an IRA will allow you to consolidate your savings in one place.
-
What Does Medicare Not Cover? Eight Things You Should KnowHealthy Living on a Budget Medicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025. That's good news for state and local government employees.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, up from $69,000 in 2024.
-
Roth IRA Contribution Limits for 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
-
457 Contribution Limits for 2024
retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
