What Happens to Your 401(k) When You Switch Jobs?

Switching jobs is a common occurrence in today’s dynamic workforce, and while it marks the beginning of a new chapter in your career, it also raises questions about what happens to your retirement savings, particularly your 401(k) plan.

Understanding the options available to you when transitioning between jobs can help you make
informed decisions about managing your retirement assets effectively.

Leave It with Your Former Employer

In many cases, you have the option to leave your 401(k) with your former employer’s plan, even
after you’ve left the company. This option is known as “in-service withdrawal,” and it allows you to maintain the tax-deferred status of your retirement savings and continue benefiting from the investment options offered by the plan. However, it’s essential to consider factors such as plan fees, investment performance, and administrative convenience when deciding whether to leave your 401(k) with your former employer.

Roll It Over to Your New Employer’s Plan
If your new employer offers a 401(k) plan and allows incoming rollovers, you may choose to
transfer your 401(k) savings from your former employer’s plan to your new employer’s plan. This
option consolidates your retirement savings into a single account, making it easier to manage
and track your investments. Rolling over your 401(k) to your new employer’s plan also
preserves the tax-deferred status of your retirement savings and maintains continuity in your
retirement planning.

Roll It Over to an Individual Retirement Account (IRA)
Alternatively, you can roll over your 401(k) savings into an individual retirement account (IRA)
held outside of your employer’s plan. IRAs offer a broader range of investment options and
greater flexibility in managing your retirement savings compared to employer-sponsored 401(k)
plans. Rolling over your 401(k) to an IRA allows you to take advantage of potentially lower fees,
more investment choices, and personalized investment strategies tailored to your retirement
goals.

Cash Out Your 401(k)
While it’s possible to cash out your 401(k) when switching jobs, it’s generally not recommended due to potential tax implications and penalties. Withdrawals from a 401(k) before reaching age 59½ are subject to ordinary income tax and a 10% early withdrawal penalty unless an exception applies. Cashing out your 401(k) not only depletes your retirement savings but also forfeits the opportunity for tax-deferred growth and future retirement income. Consider cashing out your 401(k) only as a last resort and explore other options to preserve your retirement savings.
Leave It with a Financial Advisor

Another option is to transfer your 401(k) savings to a financial advisor who can manage your
investments on your behalf. Working with a financial advisor offers personalized guidance and
investment management services tailored to your financial goals, risk tolerance, and time
horizon. Your advisor can help you develop a comprehensive retirement plan, optimize your
investment strategy, and navigate life transitions such as changing jobs.
What happens to your 401(k) when you switch jobs depends on your individual circumstances,
preferences, and retirement goals. Consult with a financial advisor or retirement planner to
explore your options and develop a strategy designed to help grow and preserve your retirement savings.

DISCLOSURE
Investment advisory services offered through Queen B Advisors, LLC, a Registered Investment
Advisor, which does business as (d/b/a) Texas Financial Advisory. Insurance products, tax
preparation services, and estate planning services are offered through Texas Insurance
Advisory, Texas Tax Advisory, and Texas Estate Advisory, respectively, all of which also do
business as Texas Financial Advisory. Insurance products, tax preparation, and estate planning
are offered separate from investment advisory services. Neither Queen B Advisors nor Texas
Financial Advisory offer tax or legal advice.