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Rollovers
Nothing happens automatically, which is the problem. When you leave an employer, your 401(k) generally stays where it is until you do something about it.
You have four options: leave it in the old plan, move it into your new employer's plan, move it into an IRA, or cash it out. Three of those are reasonable in the right circumstances. The fourth is expensive almost every time.
Often allowed, and sometimes the right call. Plans have their own rules, so check whether yours permits it and what it costs to stay.
One reason people deliberately leave money behind: the rule of 55. If you separate from an employer in or after the year you turn 55, you can generally take withdrawals from that employer's plan without the 10% early-withdrawal penalty. Roll the money to an IRA and you lose that option until 59½. If you're retiring early, this is worth knowing before you move anything.
The downside is that an old 401(k) can easily be forgotten or overlooked. An account you don't look at, at a company you no longer work for, tends to be an account nobody is actively paying attention to.
Available if your new employer's plan accepts incoming rollovers. It keeps your retirement savings in one place and may allow the money you roll in to qualify for the rule of 55 if you later leave that employer at age 55 or older.
The most common choice, mainly because it allows you to consolidate old retirement accounts into one place you control, rather than leaving them scattered among former employers.
How you do this matters more than whether you do it.
A direct rollover moves the money from your 401(k) directly to the receiving account, with the funds made payable to the receiving institution rather than to you. No mandatory 20% federal tax is withheld, and there's no 60-day deadline to meet.
An indirect rollover means the plan sends a check to you. The plan is required to withhold 20% for federal taxes, and you have 60 days to deposit the full original amount, including the 20% you never received, into the new account. If you deposit only what you got, that missing 20% is treated as a taxable distribution, and if you're under 59½, it may also be subject to a 10% early withdrawal penalty.
That's one of the most common and expensive mistakes with a rollover. If a check arrives made out to you rather than to the receiving institution, don't cash it. Call the plan and ask if it could be reissued as a direct rollover.
Pre-tax money is taxed as ordinary income in the year you take it, and if you're under 59½ there's generally an additional 10% penalty on top. Between the two, a meaningful share of the balance disappears. Unlike a market dip, it doesn't come back.
There are situations where someone genuinely needs the money. It's still worth knowing exactly what the withdrawal costs before making the decision rather than after.
Pre-tax retirement money eventually has to come out. Required minimum distributions (RMDs) generally begin at age 73 for those born from 1951 through 1959, and at age 75 for those born in 1960 or later. Roth accounts are treated differently.
If you're required to take an RMD and you're also moving the account, the RMD for that year must be taken first. It can't be rolled over.
Is a rollover a taxable event?
A direct rollover from a traditional 401(k) to a traditional IRA is generally not taxable. Moving pre-tax money into a Roth account is taxable. That's a Roth conversion, and it generates a tax bill.
How long do I have to decide?
For a direct rollover, there's generally no deadline. For an indirect rollover, you generally have 60 days from the date you receive the distribution.
Can I roll over an old 401(k) if I'm already retired?
Yes. You can generally roll over an old 401(k) even after you retire.
What if I have several old 401(k)s?
That's common after a few job changes. Multiple old 401(k)s can generally be consolidated into one retirement account, making it easier to manage and keep track of your retirement savings.
What's the difference between a direct rollover and a transfer?
A direct rollover generally moves money from an employer retirement plan, such as a 401(k), to another eligible retirement account, such as an IRA. A transfer generally moves money directly between similar accounts, such as from one IRA to another. In both cases, the money moves without being paid directly to you.
If you have an old 401(k) and you're weighing what to do with it, the right choice depends on your age, retirement goals, and overall financial situation. A thoughtful rollover strategy can help make sure your retirement savings are positioned for what comes next.
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Sources: Internal Revenue Service, rollover and required minimum distribution guidance (irs.gov).
Reviewed August 2026.
