What to do with an old 401(k)

  • By Fidelity Viewpoints
  • March 25, 2013

financial planning

Weigh the pros and cons of the options.

If you have a 401(k) or 403(b) at a former employer, you’re likely not sure what to do with it. That’s what we found out in a survey of those who made a job transition—almost a third were unsure of what to do with their workplace saving plan.1

Since your 401(k) assets are often a significant portion of your retirement savings, it’s important to weigh the pros and cons of your options—and find the one that makes sense for you.

You generally have four choices:

  • Leave assets in a previous employer’s plan

  • Move the assets into a Rollover IRA or a Roth IRA

  • Roll over the assets to a new employer’s workplace savings plan, if it is allowed

  • Cash out, or withdraw the funds

Here are some things to consider about each.

Option: Keep your 401(k) with your former employer

Check your previous employer’s rules for retirement plan assets for former employees. Most, but not all, companies allow you to keep your retirement savings in their plans after you leave. If you have recently been through a drastic change such as a layoff, this may make sense for you. It leaves your money positioned for potential tax-deferred investment growth so you can take time to explore your options.

The benefits of leaving your assets in the old plan may include:

  • Penalty-free withdrawals if you leave your job in or after the year you reached age 55 and expect to start taking withdrawals before turning 59½.

  • Institutionally priced (i.e., discounted) or special investment options in your old plan that you may not be able to roll into an IRA.

  • Money-management services that you'd like to maintain. Note, these services are often limited to the investment options available in the plan.

Some things to consider:

  • Typically, employers allow you to keep assets in the plan if the balance is over $5,000. If you have $5,000 or less, you may need to proactively make a choice. Some plans may distribute the proceeds to you automatically.

  • You’ll no longer be able to make contributions and, in most cases, take a loan.

  • You may have fewer investment options than in an IRA.

  • Withdrawal options may be limited. For instance, you may not be able to take a partial withdrawal but instead will have to take the entire amount.

  • You may have to pay extra service or administrative fees, and there may be transaction limits.

For the complete article, go to Fidelity.com/Viewpoints.





1. The study was compiled from an online survey of 1,093 Fidelity participants who currently have an employer-sponsored retirement plan with a former employer, have stayed in their workplace plan since leaving their employer for at least 120 days, have at least $50,000 in plan assets, and are the financial decision makers for their retirement plans. The survey was hosted and administered by TNS between Oct. 21 and Nov. 22, 2010.

2. Guarantees are subject to the claims-paying ability of the issuing insurance company.

3. A distribution from a Roth IRA is tax free and penalty free provided that the 5-year aging requirement has been satisfied and at least one of the following conditions is met: You reach age 59½, die, become disabled, or make a qualified first-time home purchase.

4. There is a $10,000 limit on these types of withdrawals.

5. If you are actively employed and own less than 5% of the company you’re working for, then you can generally delay taking MRDs from that company’s 401(k), 403(b), or Keogh until you retire.

6. Fidelity survey of 1,000 retirement plan participants, February 2011.

The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

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