What to Do With an Old 401(k)
Four options when you leave a job — and the one mistake that quietly costs the most.
When you leave a job, your old 401(k) does not leave with you automatically. You have four real choices, and the default — doing nothing — is usually the worst one.
Option one: leave it in the old plan. Easy, but you inherit the plan's investment menu and fees, and small balances sometimes get force-rolled into low-yield IRAs you never see again.
Option two: roll it into your new employer's 401(k). Useful if the new plan is excellent, and it keeps the door open for backdoor Roth contributions because pre-tax IRA balances complicate that strategy.
Option three: roll it into an IRA. This is the most flexible choice for most people. You unlock the full universe of investments, gain control over withdrawals, and can layer in Roth conversions over time. Just make sure it is a direct trustee-to-trustee rollover — not a check made out to you.
Option four: cash it out. Almost always a mistake before 59½. You owe ordinary income tax plus a 10% penalty, and you permanently lose the compounding runway. A $50,000 balance cashed out in your 40s can easily cost you $300,000 or more by retirement.
If you have changed jobs more than once, the best move is often to consolidate. Fewer accounts means clearer decisions.
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