Leaving a job is a big deal, and along with the excitement (or nerves) about what’s next, there’s often a lingering question: What should I do with my retirement account? Whether you have a 401(k), 403(b), or another type of employer-sponsored retirement account, deciding what to do with it is important for your financial future. Let’s look at the main choices you have and the pros and cons of each.
🏢 The average American has 12 jobs over their career.🙈 There are over 23 million forgotten/lost retirement accounts.💵 There are over 1.3 trillion USD in those forgotten/lost accounts.
Option 1: Leave the Account with Your Former Employer
The “easiest” option is to leave your money right where it is, in your former employer’s plan. As long as your account balance meets a certain minimum, typically at least $7,000, you can do this. Your money stays where it is, growing just as it was before you left. The downside is that you can’t contribute to the account anymore, and you’ll lose out on any perks tied to being an active employee. Plus, since it’s no longer tied to your daily life, it’s easy to forget about it or lose track of the account over time.
Option 2: Cash Out Your Retirement Savings
Another choice is to cash out your retirement savings. This option might seem tempting, especially if you could use the money right away. It gives you quick access to your funds and eliminates the need to manage an account anymore. However, there’s a big downside: taxes and penalties. If you’re under 59½ years old, you’ll likely face a 10% early withdrawal penalty, plus you’ll owe income taxes on the money you take out. That can eat up a huge chunk of your savings. On top of that, taking the money out means it’s no longer growing for your retirement, which could leave you behind in retirement saving down the road.
Option 3: Roll Over into an IRA
A popular alternative is rolling your retirement savings into an Individual Retirement Account (IRA). This option gives you more control and often access to a wider range of investment choices. If you’ve had multiple jobs and accumulated several retirement accounts, you can consolidate them into one IRA, making it simpler to manage your savings. The money will continue growing tax-deferred, just like in your old plan. However, some IRAs come with higher fees, and since you’re managing it on your own, it might take more effort to keep everything on track.
Option 4: Roll Over into a New Employer’s Plan
You can also roll your savings into your new employer’s retirement plan if they offer one. This can be a great way to keep everything in one place. It’s convenient to have your old savings and new contributions in one account, and you can keep building on that balance as you work. Some plans even let you borrow against your savings in case of emergencies, which isn’t usually possible with IRAs. That said, not all employers allow rollovers, and the new plan might not have as many investment options as an IRA. There might also be a waiting period before you’re eligible to roll your funds in.
When deciding what to do, think about what makes the most sense for your situation. Do you see yourself needing that money soon, or is it something you’re happy to let grow for years to come? Are you comfortable managing an account on your own, or would you prefer to keep it simple? What about fees and tax implications? Taking the time to weigh these factors can help you make the best choice.
At the end of the day, this decision isn’t just about moving money—it’s about protecting your future. Whether you cash out, leave the funds where they are, roll them into an IRA, or transfer them to a new plan, it’s worth taking the time to make the choice that best supports your retirement goals.
Still unsure? Speak with a financial advisor or retirement specialist to ensure your choice aligns with your long-term goals. Remember: the right decision today could set you up for a more secure tomorrow.
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