Switching jobs and your 401(k): rollover vs leave
When you leave a job, you have four options for your 401(k). Three are fine. One is a disaster.
Your four options
- •1. LEAVE it in the old 401(k) — usually fine if balance > $7k. Limited fund choices.
- •2. ROLL to your new 401(k) — if the new plan has good low-fee funds.
- •3. ROLL to a traditional IRA — most flexibility, lowest fees, easiest at Fidelity/Schwab/Vanguard.
- •4. CASH OUT — almost always a disaster.
$3,300 lost
Cashing out $9,400 under 59½
On a $9,400 cash-out: ~22% federal tax + state tax + 10% penalty = ~$3,300 gone. You worked years for that match. Don't.
If your old plan mails YOU the check, you have 60 days to deposit it into the new plan or it counts as a cash-out. Always do a 'direct rollover' — institution to institution.
YOUR contributions are 100% yours from day one. The EMPLOYER MATCH may have a vesting schedule (often 3–5 years). Time job changes around vesting if it's close.
Real life: meet Cashing out $9,400
Anna left a job with $9,400 in her 401(k). She cashed it. Result: ~$2,068 federal tax, ~$470 state, ~$940 10% penalty = ~$6,000 net. She lost $3,400 + 30 years of compounding (~$26k future value).
$9,400 cashed → ~$6,000 net · ~$26k future value lost
Takeaway
Roll to an IRA via a direct trustee-to-trustee transfer. Never cash out unless you're truly in survival mode.
Which of these is almost always the WORST 401(k) choice when leaving a job under 59½?
Takeaway: The cash-out option is always the wrong default — it's typically 30% gone immediately and all future growth lost.
Try together: Walk through opening a Rollover IRA at Fidelity or Schwab together. Bookmark the 'initiate rollover' page so it's easy when needed.