What happens to my 401(k) when I change jobs?

Your four options

Changing jobs is one of the most common moments people mishandle their retirement savings — not out of carelessness, but because the paperwork arrives during a busy transition and the default is easy to accept. Here are the four paths, with the honest trade-offs.

1. Leave it in the old plan

If you're happy with the plan's investments and fees, and the balance is large enough to stay, doing nothing is a valid short-term choice. The downsides: you can't add to it, you may have limited investment options, and forgotten accounts add up over a career. Keep the login and statements.

2. Roll it into your new employer's plan

Consolidating into your new 401(k) keeps everything in one place, preserves tax deferral, and — depending on the plan — may offer strong, low-cost options and features like plan loans. Check the new plan's investment menu and fees before you move it.

3. Roll it into an IRA

An IRA rollover often opens up a wider range of investments and can make the money easier to manage alongside your other accounts. Consider whether you want a traditional IRA (keeping the tax deferral) or a Roth conversion (paying tax now for tax-free growth later — a decision to run past your CPA). Note that money in an IRA may have different creditor protections than money in a 401(k).

4. Cash it out — the trap

Taking the money as cash is almost always the most expensive choice. You generally owe ordinary income tax on the full balance, plus a 10% penalty if you're under the qualifying age, and you permanently give up the future tax-deferred growth. Outside a true emergency, this is the option to avoid.

Roth balances and after-tax dollars

If part of your old 401(k) was Roth, keep it in the Roth world — roll it to a Roth IRA or your new plan's Roth option so the tax-free treatment continues. Mixing pre-tax and Roth dollars incorrectly can create headaches, so match like to like.

Your next step

Before you sign anything, compare the fees and investment options of your old plan, your new plan, and an IRA, and choose a direct rollover to keep it clean. A short checklist beats a rushed default every time.