What should you do with an old 401(k)?

Somewhere in a drawer, or an old email folder, there is a statement for a retirement account you have not thought about in a while. Maybe two. They belong to jobs you have already left, and every time they surface you think “I should really deal with that,” and then the day carries you elsewhere.

So let us deal with it, calmly. An old 401(k) is not a problem to be ashamed of. It is a decision that has been politely waiting. There are four things you can do with it, each one legitimate, and the right choice depends on details that are yours to weigh rather than a rule that fits everyone. This piece walks the four paths and the few factors that separate them, so the next time that statement appears you can decide.

First, what an old 401(k) actually is

When you leave an employer, the money you contributed to your 401(k) is yours to keep, along with whatever employer contributions you were vested in. Vesting is simply the share of the employer’s contributions you have earned based on how long you stayed; your own contributions are always fully yours. If you are not sure what you are vested in, confirm it with the plan first, because it changes the actual number you are deciding about.

Leaving the job does not force you to move the account. It stays invested until you decide otherwise, with one common exception: if the balance is small, the plan may have rules that push it out automatically. Everything below applies to a traditional, pre-tax 401(k); Roth 401(k) and after-tax money follows its own rules, which is a good flag for a professional if that is what you hold.

The four paths, and what each one changes

1. Leave it in your former employer’s plan

Doing nothing is a real option, not just avoidance. The money stays invested, keeps growing tax-deferred, and remains inside a workplace plan. Large employer plans sometimes carry lower investment costs than you could get on your own, and assets in an employer plan have broad protection from creditors under federal law.³ The tradeoffs: you are limited to that plan’s menu, you may lose access to certain services once you are no longer an employee, and old accounts scattered across former employers make your overall picture harder to see. Very small balances may not be allowed to stay.

2. Move it into your new employer’s plan

If your current job offers a 401(k) that accepts rollovers, you may be able to bring the old account in. The appeal is tidiness: one workplace account instead of several, one menu to understand, and the same broad federal creditor protection employer plans carry.³ The tradeoffs mirror the first path. You are again choosing a fixed menu, this time your new plan’s, so compare its fees and options against what you are leaving. Not every plan accepts incoming rollovers, so this one starts with a question to your current plan administrator.

3. Roll it into an IRA

You can move the money into an individual retirement account, an IRA you control at a brokerage or fund company. IRAs typically open up a much wider range of investment choices than any single employer plan, and let you gather several old accounts in one place.³ The tradeoffs are worth understanding. IRA costs vary widely, a wider menu helps only if your choices inside it are sound, and creditor protection can differ, since IRA assets are protected in bankruptcy only up to a federal cap and otherwise depend on your state.⁵ One timing rule matters too: leaving an employer in or after the year you turn 55 can allow penalty-free withdrawals from that workplace plan before age 59½, an option you generally give up once the money is in an IRA.³ Since what sits inside the account is its own skill, it is worth learning the basics of investing after 40 before you move a balance you have spent years building.

4. Cash it out

You can take the money as cash. It is your right, and in a genuine emergency it may feel like the only door. It is also the most expensive path by a wide margin. A cash-out from a pre-tax 401(k) counts as taxable income for the year, the plan must withhold 20 percent for federal taxes up front, and if you are under 59½ you generally owe an additional 10 percent early-distribution tax on top of ordinary income tax, unless an exception applies.¹² It also ends the tax-deferred growth those dollars could have done for the next couple of decades. Sometimes it is still the necessary choice. It should just be a choice you make on purpose, with the full cost visible.

Comparing the four side by side

No single column wins for everyone. Laying them next to each other just makes it easier to see which differences actually matter to you.

The details that quietly decide it

Once you can see the four paths, a few specific factors do most of the deciding. These are the questions worth asking before you move anything.

Fees. Fees are easy to ignore because they are small on any single day and enormous over decades. The Department of Labor illustrates it plainly: on a $25,000 balance left untouched for 35 years at a 7 percent return, trimming annual fees from 1.5 percent to 0.5 percent grows the ending balance from about $163,000 to about $227,000, roughly a 28 percent difference.⁴ So compare the all-in costs of your old plan, any new plan, and any IRA, rather than assuming one is automatically cheaper.

Investment options and creditor protection. A wider IRA menu is a benefit only if it fits how you actually invest; a simple, low-cost plan lineup serves many people well. Protection from creditors is a genuine difference too. Employer-plan money has broad, essentially unlimited protection under federal law, while IRA money is protected in bankruptcy up to a federal cap that adjusts for inflation and otherwise depends on your state.³⁵ For most people this never comes up; for some it decides the question.

Taxes and how you move the money. If you move the account, how you move it matters as much as where it goes. A direct rollover, where the money travels straight from one plan or custodian to the next without passing through your hands, avoids withholding and keeps the whole balance working.¹ If instead the plan writes the check to you (a 60-day, or indirect, rollover), it must withhold 20 percent, and you have only 60 days to redeposit the full original amount, making up that 20 percent from your own pocket, or the shortfall becomes a taxable distribution.¹ A direct transfer sidesteps that trap, which is why it is the more common way to move a workplace account. (The one-per-12-months limit on IRA-to-IRA rollovers does not apply to direct transfers or to a rollover out of a workplace plan.)¹

What to verify before you act. Confirm your vested balance, whether the old plan holds any Roth or after-tax money, whether your new plan accepts rollovers, and the fees on both sides. If you hold employer stock, pause: appreciated company shares can carry special tax treatment that a routine rollover into an IRA gives up, so that situation is worth professional review first.³ Rules and figures change, so treat this as the shape of the decision and confirm the specifics with the plan and an official source before you sign.

Handle this this week

What can wait

When to bring in a professional

Sources

1. Internal Revenue Service. “Rollovers of retirement plan and IRA distributions” (direct vs. 60-day rollovers, 20 percent mandatory withholding on distributions paid to you, and the one-rollover-per-12-months limit on IRA-to-IRA rollovers). irs.gov/retirement-plans Accessed July 26, 2026 · Tax rules change; confirm the current guidance before acting.
2. Internal Revenue Service. “Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs” (10 percent additional tax before age 59½; the exception for separation from service in or after the year you turn 55). irs.gov/taxtopics/tc558 Accessed July 26, 2026 · Verify the current rule and any exceptions before relying on it.
3. Financial Industry Regulatory Authority (FINRA). “Regulatory Notice 13-45: Rollovers to Individual Retirement Accounts” (factors to weigh: investment options, fees, services, penalty-free withdrawals for those 55 to 59½, creditor protection, required minimum distributions, and employer stock). finra.org/rules-guidance/notices/13-45 Published December 2013 · Accessed July 26, 2026
4. U.S. Department of Labor, Employee Benefits Security Administration. “A Look at 401(k) Plan Fees” (fee categories and the illustrative 1 percentage-point / 28 percent example over 35 years). dol.gov/ebsa (401k-plan-fees.pdf) Accessed July 26, 2026 · Figures are DOL illustrations, not predictions.
5. Bankruptcy Abuse Prevention and Consumer Protection Act inflation adjustment (federal IRA bankruptcy exemption cap; $1,711,975 effective April 1, 2025, adjusted every three years). Summary via Ascensus industry regulatory news. ascensus.com/industry-regulatory-news Effective April 1, 2025 · Accessed July 26, 2026 · This cap adjusts periodically and state protections vary; confirm current figures.

Written and reviewed by Carrie, Handled Money Editorial · Published July 26, 2026 · Last reviewed July 26, 2026. We update this article when the rules or figures it cites change.