SoFi

It’s easy to forget about an old 401(k) plan when changing to a new job. Some people may forget about it because the company that manages the 401(k)never reminds them. Others are aware of their old account, but they put off the rollover because they think it will be difficult to do.

But by not rolling over your 401(k), you might be losing some serious cash. Here are a few key reasons to prioritize a 401(k) rollover.

3 Reasons to Transfer Your 401(k) to a New Job

Rolling over a 401(k) can have some significant benefits. Here are three main reasons to consider rolling over a 401(k):

1. You May Be Paying Hidden Fees

Certain fees go into effect when you open a 401(k), which typically include administrative, investment, and custodial fees.

Employers may cover some of these fees until you leave the company. Once you’re gone, that entire cost might shift to you. If the fees are high, rolling over a 401(k) to a plan with lower fees can be advantageous.

2. You Might Be Missing Out on Certain Types of Investments

If you aren’t happy with the investment options in your old plan and your new employer allows you to roll over your old 401(k), you might gain access to a broader range of investment vehicles that better aligns with your financial goals.

Just be aware that investments come with risk, so it makes sense to consider your personal risk tolerance when choosing investment options.

Also, if you leave your 401(k) where it is, you may forget about it and your portfolio may no longer have your desired asset allocation as you get older. It’s important to keep tabs on your investments to ensure they are on track and appropriate for your time horizon and goals.

3. You Could Lose Track of Your 401(k) Account

It’s more common than you might think for people to lose track of old 401(k) accounts. According to one estimate, there are more than 29 million forgotten 401(k) accounts in the U.S. By rolling over a 401(k) to a new plan, you’ll know where your money is.

Losing track of a 401(k) account is not necessarily the fault of an investor — it may simply be logistics. It’s harder and more time-consuming to juggle multiple retirement accounts than it is to manage one. Plus, if you change jobs several times throughout the years, you could end up with a few different 401(k) plans to keep track of.

Do You Have to Rollover Your 401(k) to a New Employer?

You aren’t required to roll over your 401(k) to a new employer’s plan. If you have more than $7,000 in the old 401(k) account, you can leave the funds where they are. But keep in mind that you will no longer be able to make contributions to the account. In fact, one reason you might want to roll over the money into an individual retirement account (IRA) is that you can make annual contributions. In 2024 and 2025, you can contribute up to $7,000 in an IRA, and those 50 and older can contribute up to $8,000.

What happens to your 401(k) when you leave your job and you have between $1,000 and $7,000 in your account? In that case, your former employer may not allow you to keep it there. Instead, they might roll over the 401(k) into an IRA in your name. If you have less than $1,000 in your 401(k), the employer will typically cash out the funds and send you a check for the amount.

What to Do With Your 401(k) After Getting a New Job

When you get a new job, and you have a 401(k) from your previous employer, you have several options. As mentioned above, you can leave the money in your old employer’s 401(k) plan if you have more than $7,000 in the account. But if you have less than that in account, or you don’t like your old employer’s 401(k) plan, you can do one of the following:

Roll Over a 401(k) to Your New Employer’s Plan

If your new employer offers a 401(k) plan and you are eligible to participate, you can roll the money over from your old plan to the new plan. Consolidating your 401(k)s can help you manage all of your retirement savings in one place.

The process is usually simple. You can request that the 401(k) administrator at your old company move the funds into your new employer’s plan through what’s known as a direct transfer.

Roll Over a 401(k) to an IRA

An IRA is another option for your 401(k) funds. Rolling a 401(k) into an IRA can give you more control over your investment options, and you can do it through a direct transfer of funds from your old employer to a new IRA account you set up. Just keep in mind that IRAs don’t come with employer-provided benefits, such as matching contributions.

Recommended: IRA vs 401(k): What Is the Difference?

Cash Out Early

You can also choose to cash out your 401(k). However, if you’re younger than 59 ½, you will have to pay taxes on the money, and perhaps an additional 10% early withdrawal penalty.

Under some qualifying circumstances, the 10% fee may be waived, such as when the funds will be used for eligible medical expenses. But if there are no qualifying circumstances in your situation, think carefully about cashing out your 401(k) to make sure it’s the right choice for you.

What Happens to Your 401(k) if You’ve Been Fired?

If you’ve been fired, you will still have access to the funds you’ve contributed to the account as well as the fully vested employer contributions, known as the 401(k) vested balance.

And as long as you have more than $7,000 in the account, you’ll generally have the same options covered above — you can keep the 401(k) where it is, roll it over to your new employer’s plan, roll it over to an IRA at an online brokerage, or cash it out.

How Long Do You Have to Transfer Your 401(k)?

If you are rolling over your 401(k) to a new employer’s plan or into an IRA, you generally have 60 days from the date you receive the funds to deposit them into the new account. If you don’t complete the rollover within 60 days, the funds will be considered a distribution and they’ll be subject to taxes and penalties if you are under the age of 59 ½.

Advantages of Rolling Over Your 401(k)

Rolling over your 401(k) to your new employer’s plan may provide several benefits. Here are a few ways this option might help you.

One Place for Tax-Deferred Money

Transferring your 401(k) to your new employer’s plan can help consolidate your tax-deferred dollars into one account. Keeping track of and managing one 401(k) account may simplify your money management efforts.

A Streamlined Investment Strategy

Not only does consolidating your old 401(k) with your new 401(k) make money management more straightforward, it can also streamline your investments. Having one account may make it easier to coordinate your investment strategies, target your asset allocations, monitor your progress, and make any adjustments as needed.

Financial Service Offerings

Some 401(k) plans offer financial services, such as financial planner consultations to do such things as answer employees’ questions and help them with general financial planning. If your previous employer didn’t provide this and your new plan does, taking advantage of it may be helpful to you.

Disadvantages of Transferring 401(k) to a New Job

There are some potential drawbacks of rolling over a 401(k) to a new employer’s plan to consider as well. These may include:

•   Loss of certain investment options: Your new employer’s plan may offer different investment options than your old plan, and you may lose some options you liked. The new plan might also offer fewer investment options, limiting your ability to diversify your portfolio.

•   Increased fees: The new employer’s plan may have higher fees associated with it, which could eat into your investments over time.

•   Possible delays: The process of rolling over your 401(k) can take time, which could cause delays in accessing your funds.

How to Roll Over Your 401(k)

So, how do you transfer your 401(k) to a new job? If you’ve decided to roll your funds into your new employer’s 401(k), these are the steps to take:

1.    Contact your new plan’s administrator to get what’s known as the account address for the new 401(k)plan, and then give that information to your old plan’s administrator.

2.    Complete any necessary paperwork required by your old and new employers for the rollover.

3.    Request that your former plan administrator send the funds directly to the new plan. You can also have them send a check to you (it should be made out to the new account’s address), which you then give to the new plan’s administrator.

401(k) Rollover Rules

You may select a direct rollover, trustee-to-trustee transfer, or indirect rollover when rolling over your 401(k) to a new plan.

With a direct rollover, your old employer makes out a check to the new account address. Because the funds are directly deposited into the new account, no taxes are withheld.

With a trustee-to-trustee transfer, the old plan administrator sends the funds to the new plan via an electronic transfer.

With an indirect rollover, the check is payable to you, with 20% withheld for taxes. You’ll have 60 days to roll over the remaining funds into your employer’s plan or an IRA or other retirement plan.

Recommended: Rollover IRA vs. Traditional IRA: What’s the Difference?

Rolling Over a 401(k) Into an IRA

If you choose to roll your 401(k) funds into an IRA, the process is relatively straightforward. Here are the typical steps to take to roll over a 401(k) into an IRA:

1.    Choose an IRA custodian: This is the financial institution that will hold your IRA account. Some popular choices include brokerage firms, banks, credit unions, and online lenders.

2.    Open an IRA account: Once you have chosen an IRA custodian, you can open an IRA account. You will need to provide personal information such as your name, address, and Social Security number.

3.    Request a 401(k) distribution: Contact the plan administrator of your old employer’s 401(k) and request a distribution of your account balance. You will need to specify that you want to do a “direct rollover” or “trustee-to-trustee” transfer to your new IRA account, since these are the most straight forward transfers.

4.    Provide IRA custodian information: Give the 401(k) plan administrator the IRA custodian’s name, address, and account information, so they know where to send the funds.

5.    Wait for the funds to be transferred: The process of transferring funds can take several weeks.

6.    Monitor the account: Once the rollover is complete, check your IRA account to ensure that it has been funded and that the balance is correct.

7.    Invest your funds: After the funds have been transferred to your IRA account, you can begin making investments with the money.

Your 401(k) plan administrator may have specific procedures for rolling over your account, so be sure to follow their instructions. Also, as noted above, there are some rules to follow, such as the 60-day rollover rule. It’s essential to abide by these to avoid penalties.

The Takeaway

There are benefits to rolling over a 401(k) after switching jobs, including streamlining your retirement accounts and making it easier to manage them. You may choose to roll over your 401(k) into a new employer’s plan, or into an IRA that you manage yourself, which could give you more investment options to choose from. Be sure to weigh the pros and cons of the different choices to help decide which one is best to help you save for retirement.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

Should I roll over my 401(k) to a new employer?

It depends on your specific situation and goals. You might consider rolling over your 401(k) to your new employer if the new plan offers better investment choices or if consolidation leads to lower account fees. Another potential benefit is convenience — it’s easier to manage one account than two. That said, if control is most important to you, rolling over your 401(k) to an IRA, and having more investment options, may be the better choice for you.

How long do you have to move your 401(k) after leaving a job?

If the balance in your 401(k) is $7,000 or more, you can typically leave it there as long as you like. If your balance is $1,000 to $7,000, your former employer may not allow you to leave it there and instead might roll over the 401(k) into an IRA. If you have less than $1,000 in your 401(k), the employer will typically cash out the 401(k) and send you a check for the amount.

Once you initiate the rollover process, you typically have 60 days from the date of distribution to roll over your 401(k) from your previous employer to an IRA or another employer’s plan. Otherwise, it may be considered a taxable distribution and may be subject to penalties. This is primarily the case for indirect rollovers, but check with your plan administrator for specific details.

How do I roll over my 401(k) from my old job to my new job?

To roll over your 401(k) from your old job to your new job, you should contact the administrator of your new employer’s 401(k) plan and ask for the account address for the plan. Next, give the account address to your old plan’s administrator and ask them to transfer the funds directly to the new 401(k).

What happens if I don’t roll over my 401(k) from my previous employer?

Depending on the amount of money in your account, you don’t necessarily need to roll it over. If you have more than $7,000 in your 401(k), you can generally leave it with your old employer, as long as the plan allows it. But if you have less than $7,000 in your account, your employer may not allow you to leave it there. In that case, they might move it to an IRA for you, or send you a check for the money, if it’s less than $1,000.

SoFi Invest®