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4 Things to Know About Your 401(k) When Changing Jobs

Zoe Team

Feb 1, 2022

5 min read

A financial advisor reviewing a plan with two clients at a table

Key Takeaways

Leaving a 401(k) with an old employer may incur monthly or percentage-based maintenance fees.
Rolling over a 401(k) to an IRA allows for tax-free movement and access to a wider variety of investment options.
Consolidating multiple retirement accounts into one IRA simplifies tracking and reduces complex tax reporting.

Frequently Asked Questions

Will I be taxed if I roll over my 401(k) to an IRA?

No, if you complete a direct rollover to an IRA, you will face no tax consequences or penalties, as the funds maintain their tax-advantaged status.

Why should I move my 401(k) instead of leaving it?

Leaving it behind can lead to account maintenance fees and limited investment choices, whereas an IRA often offers more control and cost-effective investment options.

Can I combine a 401(k) with my spouse’s account?

No, you cannot consolidate retirement accounts held in different names, such as those belonging to you and your spouse.

Whether you are a part of the great resignation, breaking into retirement, or going through a job change, here are 4 things to know about your 401k when changing jobs.

The Era of The Great Resignation

In the past months, quit rates in the U.S. have never been higher. A new trend called “The Great Resignation” is a strong depiction of millennials and their openness to change. In fact, employees have been quitting their jobs at a record rate, and those who are changing jobs are seeing higher pay than those who stay put. Whether you are a part of the great resignation, breaking into retirement, or going through a job change, chances are you have a 401k with an old employer that needs some attention. This is a guide that will help you understand what you need to know about your 401k when changing jobs.

What is a 401k?

401(k)s are employer-sponsored retirement plans that let you save money with tax advantages. As an employee, you agree to have a percentage of your paycheck paid into an investment account (of your choice) directly. The employee can then choose to match your contribution.

If you’re an employee, a 401k is a fantastic tool to save for retirement. The thing with retirement savings tools is that if they’re sponsored by your employer, some have more flexibility than others once you leave the employer.

To break it down for you, we made a comprehensive guide of the things you should understand about your 401k if you’ve left, or are planning to leave your job.

Hint… you can move your money with no tax consequences!

4 Things You Need to Know About Your 401k When Changing Jobs

1. When you leave your 401k with your old employer, you can be charged fees for your old account!

The cost to maintain a 401k plan is incurred by the employer. However, if your employment ends, the benefit ends too. Meaning that the once-free retirement savings account is no longer free. This cost could be a monthly account fee of as low as $30, or higher like 1.5% of the total account balance.

2. You can move your 401k into an IRA once your employment ends, without tax consequences!

There are taxes and penalties associated with moving a 401k if you just cash out. But if you move it to an IRA (i.e. roll it over) then you have no tax or penalties to pay. Since the money keeps its preferential treatment.

The IRA does not have to be with the same custodian either, you can choose where you want your account to be held.

If you want to move your account, your 401k provider (the company listed on your account statement) can walk you through the rollover steps.

3. 401k accounts have limited investment options, so an IRA will have more options that could better align with your goals

401k accounts usually have limited investment options. Typically, the company will choose a list of mutual funds that their employees can choose from and you are limited to those options.

However, if your account wasn’t with an employer (i.e. an IRA) then you have hundreds of more investment options.

Why is this more beneficial? There may be less expensive investment options to you that can give you the same performance. Additionally, you can realign your investment choices with your overall financial goals to better achieve the financial life you want.

4. Combining your IRAs and 401k can help to simplify your financial life by having fewer accounts to keep track of.

‘Simple’ should be the methodology for your financial situation. If you’ve had 6 jobs, you could have 6 different 401(k)s all at different custodians, with 6 different statements and tax forms. All that complexity may not be necessary!

You can simplify your retirement tracking by consolidating accounts and reducing the paper trail associated. As long as you are the named owner of the account, you can consolidate anything.

What you cannot do is combine IRAs or 401ks in different names (like you and your spouse).

A Few Tips if You’re Moving Your 401k

Of course, transitioning your 401(k) may seem like the easiest option, and it certainly is the most beneficial in my opinion. But there are other considerations to keep in mind.

At the end of the day, changing jobs is a decision that comes with many reasons. Maybe you want a career break, woke up with an entrepreneurial boost one day, or just had a personal awakening. Regardless of the reason, you may owe some money or need immediate cash.

There are options depending on your situation. Here are some additional tips you can take into account when deciding on a transfer.

Check if you have outstanding loans on your 401(k).

You may be able to leave your account with your employer, at least temporarily!

Cashing out an old account is an option if you need the cash, but not the smartest from a tax perspective.

You saved this money for retirement, try to keep it that way.

401k When Changing Jobs: Now You Know!

It’s in everyone’s best interest to help you save for retirement. This is why retirement savings plans come with flexibility and numerous benefits.

As 401(k)s are extremely helpful, the rules and possibilities attached can be tricky to navigate.

The best place to start is understanding what accounts you have and where they are located. From there, you can decide if the fees and investment options are favorable to keep the accounts where they are or consolidate them into an IRA.

Your retirement is the time when all your life’s hard work pays off, why not give it the boost that it deserves?

Whether you are a part of the great resignation, breaking into retirement, or going through a job change, here are 4 things to know about your 401k when changing jobs.

The Era of The Great Resignation

What is a 401k?

To break it down for you, we made a comprehensive guide of the things you should understand about your 401k if you’ve left, or are planning to leave your job.

Hint… you can move your money with no tax consequences!

4 Things You Need to Know About Your 401k When Changing Jobs

1. When you leave your 401k with your old employer, you can be charged fees for your old account!

2. You can move your 401k into an IRA once your employment ends, without tax consequences!

The IRA does not have to be with the same custodian either, you can choose where you want your account to be held.

If you want to move your account, your 401k provider (the company listed on your account statement) can walk you through the rollover steps.

3. 401k accounts have limited investment options, so an IRA will have more options that could better align with your goals

401k accounts usually have limited investment options. Typically, the company will choose a list of mutual funds that their employees can choose from and you are limited to those options.

However, if your account wasn’t with an employer (i.e. an IRA) then you have hundreds of more investment options.

4. Combining your IRAs and 401k can help to simplify your financial life by having fewer accounts to keep track of.

You can simplify your retirement tracking by consolidating accounts and reducing the paper trail associated. As long as you are the named owner of the account, you can consolidate anything.

What you cannot do is combine IRAs or 401ks in different names (like you and your spouse).

A Few Tips if You’re Moving Your 401k

Of course, transitioning your 401(k) may seem like the easiest option, and it certainly is the most beneficial in my opinion. But there are other considerations to keep in mind.

There are options depending on your situation. Here are some additional tips you can take into account when deciding on a transfer.

Check if you have outstanding loans on your 401(k).

You may be able to leave your account with your employer, at least temporarily!

Cashing out an old account is an option if you need the cash, but not the smartest from a tax perspective.

You saved this money for retirement, try to keep it that way.

401k When Changing Jobs: Now You Know!

It’s in everyone’s best interest to help you save for retirement. This is why retirement savings plans come with flexibility and numerous benefits.

As 401(k)s are extremely helpful, the rules and possibilities attached can be tricky to navigate.

Your retirement is the time when all your life’s hard work pays off, why not give it the boost that it deserves?

Disclosures: Zoe Financial, Inc. ("Zoe Financial") is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Zoe Financial provides investment advisory services and access to independent registered investment advisers through its platform. The information provided by Zoe Financial is for educational and informational purposes only and should not be construed as personalized investment advice or as an offer to buy or sell any security. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Clients should consult with their own financial, tax, or legal professionals before making any investment decisions. The material presented by Zoe Financial is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Material presented has been gathered from sources believed to be reliable, however Adviser cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Past performance is no guarantee of future results. Zoe Financial does not provide legal or tax advice, and nothing contained in these materials should be taken as legal or tax advice. SEC Registration does not constitute an endorsement of Zoe Financial by the SEC nor does it indicate that Zoe Financial has attained a particular level of skill or ability. The sole purpose of this material is to inform, and it in no way is intended to be an offer or solicitation to purchase or sell any security, other investment or service, or to attract any funds or deposits. Investments mentioned may not be appropriate for all clients. Before making any investment, each investor should carefully consider the risks associated with the investment, as discussed in the applicable offering memorandum, and make a determination based upon their own particular circumstances, that the investment is consistent with their investment objectives and risk tolerance. Lower expenses do not guarantee better investment performance. Certain information contained herein may constitute forward-looking statements. Due to various risks and uncertainties, actual events, results or the performance of a fund may differ materially from those reflected or contemplated in such forward-looking statements.

Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

Investment advisory services are provided by Zoe Financial, Inc. (Zoe Financial), an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Learn more about Zoe Financial on the SEC’s Investment Adviser Public Disclosure website. Brokerage services are provided by Zoe Securities LLC and Apex Clearing Corporation, members of the Financial Industry Regulatory Authority Inc. (FINRA) and Securities Investor Protection Corporation (SIPC). Learn more about Zoe Securities and Apex on FINRA’s BrokerCheck website.

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