What can you do with your 401(k) when you quit your job?

When you quit your job, you have several options regarding what you can do with your 401(k) retirement account. The most obvious ones are transferring your 401(k) to your new job and converting it to a traditional Individual Retirement Account (IRA).

There is another option but few people advise it.

All of your 401(k) options when changing jobs.

If you’re moving to a new job that offers a 401(k) plan, you can choose to roll over your old 401(k) balance into your new employer’s plan. This can help you consolidate your retirement savings and continue to benefit from tax-deferred growth.

You can also choose to roll over your old 401(k) into a traditional Individual Retirement Account. This option gives you more control over your investment choices and may offer a wider range of investment options compared to a typical employer-sponsored plan. Additionally, if your old 401(k) had high fees, this could be an opportunity to potentially lower those costs.

If you have a Roth 401(k) and you’re interested in converting to a Roth IRA, you can do a Roth conversion. Keep in mind that this conversion will be subject to income taxes in the year of conversion.

The nuclear option

While possible, cashing out your 401(k) when you quit your job is a bad idea. If you withdraw money from your 401(k) before the age of 59½, you’ll face early withdrawal penalties and income taxes on the withdrawn amount. This can significantly reduce the value of your retirement savings.