What to Do With Your 401(k) After Leaving a Job in 2026

Published: August 23, 2026

Leaving a job does not mean you must immediately withdraw your 401(k). You may be able to leave it in the former employer’s plan, move it to a new employer’s plan, complete a direct rollover to an IRA, or take a distribution. Each choice affects fees, investments, taxes, protections, and access to the money.

Your four common options

1. Leave it in the old plan, if the plan permits.
2. Roll it into a new employer’s plan, if that plan accepts rollovers.
3. Complete a direct rollover to an IRA.
4. Take a cash distribution, which may create current taxes and an additional early-distribution tax.

1. Leave the account in the former employer’s plan

This may be reasonable when the plan offers low institutional fees, useful investments, or distribution features you value. Review administrative fees, fund expense ratios, withdrawal choices, beneficiary information, small-balance rules, and any outstanding plan loan. Save the administrator’s current contact information.

2. Move it to the new employer’s plan

Combining accounts can simplify recordkeeping. Before moving money, confirm that the new plan accepts incoming rollovers and compare its fees, investment menu, withdrawal rules, and participant services with the old plan. A new plan is not automatically less expensive or more flexible.

3. Use a direct rollover to an IRA

An IRA can provide a wider investment menu, but its platform, advisory, fund, trading, and service fees vary. For a direct rollover, ask the 401(k) administrator to send the eligible amount to the receiving IRA or issue a check payable to the receiving custodian for your benefit.

The IRS states that federal income tax generally is not withheld from an eligible amount transferred through a direct rollover. Review the official IRS rollover guidance.

Why a direct rollover matters

If an eligible rollover distribution from an employer plan is paid directly to you, the plan generally must withhold 20% of the taxable amount for federal income tax, even if you intend to roll it over later.

You generally have 60 days to complete an eligible rollover. To defer tax on the entire eligible amount after receiving it personally, you may need to replace the withheld 20% using other funds. A taxable amount not rolled over may be included in income and may face the 10% additional tax on early distributions unless an exception applies.

A direct rollover usually avoids mandatory 20% withholding and reduces the risk of missing the deadline.

4. Cash out the account

Cashing out may provide immediate funds, but pretax contributions and earnings not rolled over generally become taxable income. If you are under age 59½, a 10% additional federal tax may apply unless an exception covers the distribution. State tax may also apply.

A withdrawal also removes money from tax-advantaged retirement savings. Compare the after-tax amount with other resources before closing the account.

Traditional, Roth, and after-tax money

A 401(k) may contain pretax contributions, designated Roth money, after-tax contributions, employer contributions, or a combination. Ask for a breakdown by tax source before authorizing a transfer.

• Pretax money moved directly to a traditional IRA or eligible pretax plan generally continues tax deferral.
• Moving pretax money to a Roth IRA is generally a taxable conversion.
• Designated Roth 401(k) money generally moves to a Roth IRA or eligible designated Roth account.
• After-tax contributions and their earnings may require separate instructions.

For mixed balances, consult the IRS page on after-tax contribution rollovers.

Check any outstanding 401(k) loan

Leaving a job can affect a plan loan. The plan may allow continued payments, require action by a deadline, or offset the unpaid balance against the account. A plan-loan offset can have tax and rollover consequences. Request the balance, payoff instructions, deadline, and tax reporting details before moving the account.

Compare fees in dollars

Review administration charges, fund expense ratios, managed-account fees, IRA service fees, and proprietary investment costs. A 0.75% annual fee equals $750 on a $100,000 balance before market changes. Small percentage differences can compound over time.

Practical rollover checklist

1. Download the latest statement and beneficiary information.
2. Separate pretax, Roth, after-tax, employer, and loan balances.
3. Request fee disclosures from the old plan and possible destinations.
4. Confirm the receiving plan or IRA accepts the specific rollover.
5. Use exact direct-rollover payee instructions.
6. Keep confirmation numbers, checks, statements, and Form 1099-R.
7. Confirm that the full amount reached the correct tax bucket.
8. Update beneficiaries after the transfer.

Common mistakes

• Assuming a rollover is immediately required.
• Requesting a check in your own name without understanding withholding.
• Moving pretax money to a Roth IRA without planning for taxes.
• Ignoring a plan loan.
• Selecting an IRA only for a promotional bonus.
• Moving from a low-cost plan into higher-fee investments.

Bottom line

Compare the old plan, the new employer’s plan, and an IRA before acting. Identify every tax source and loan balance. If a rollover fits your goals, a properly executed direct rollover generally provides the cleanest path for avoiding mandatory withholding and preserving tax deferral.

Official reference: IRS Topic No. 413.

This article is general educational information, not individualized tax, legal, investment, or retirement advice. Plan documents and current IRS rules control.