What Happens to Your 401(k) When You Quit Your Job?

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Leaving a job doesn’t mean leaving your retirement savings behind–but it does mean making a decision. Your 401(k) stays with your former employer unless you take action to move it. You can cash it out (with potential penalties), roll it into an IRA, or transfer it to a new employer’s plan.

Each option has different tax implications and long-term consequences, so it’s worth understanding what’s at stake.

Your 401(k) After a Job Change: What Are Your Options?

When you leave a job, there are four possible outcomes for your 401(k).

• You do nothing and your money stays in the old account.
• You roll it over into a new employer’s 401(k).
• You roll it over into an IRA.
• You cash it out.

It’s essential to note that while you control 100% of your contributions, only fully vested employer matching funds are yours to keep.

What to Do With Your 401(k): Compare the 4 Main Options

Three out of four options can be the right choice depending on the situation, while the fourth is wrong in nearly all scenarios.

• Leave it with your former employer. This can be a good option if your old 401(k) has low fees, strong investment choices, or other features you don’t want to give up. However, you won’t be able to contribute anymore, and you’ll have limited control over the account.
• Roll it over to an IRA. This offers greater control, more investment options, and flexibility. If done as a direct rollover, you won’t face taxes or penalties. On the downside, annual IRA contributions are capped at $7,000 in 2025 (or $8,000 if you’re 50 or older), much lower than the 401(k) limits–and IRAs don’t come with employer matching.
• Move it to your new employer’s 401(k). Consolidating accounts can simplify fund management and keep all your retirement savings in one place. However, not all employer plans accept rollovers, so you’ll need to check your new plan’s policy.
• Cash it out This is almost always the worst option. If you’re under age 59½, you’ll owe a 10% early withdrawal penalty and pay income tax on the full amount. More importantly, you’ll lose out on future growth and seriously reduce your retirement savings.

What Happens to Employer Contributions When You Quit?

Your 401(k) balance is made up of two parts: the money you contribute and the money your employer may contribute on your behalf–usually through a matching program. When you leave your job, your own contributions (and any investment earnings on them) are always yours to keep. But employer contributions are a bit trickier. Whether you get to keep that portion depends on your vesting status, which is tied to how long you stayed with your employer.

Do I get to keep my employer match?

That depends on your plan’s vesting schedule, or the rules that determine how much of your employer’s contributions you own based on your length of service. If you’re fully vested, you can take the entire match with you. If you’re only partially vested, you’ll keep a portion and forfeit the rest. If you’re not vested at all, you lose the employer contributions completely. Again, your own contributions are always yours.

How does vesting work?

Employers typically use one of three vesting schedules:

• Immediate vesting: You own 100% of the employer match as soon as it’s deposited.
• Graded vesting: You gain ownership gradually, such as 20% each year over five years.
• Cliff vesting: You don’t own any of the employer match until you hit a specific milestone–like three years of service–at which point you’re fully vested. Leave before that, and you lose all employer contributions.

Before quitting your job, it’s worth checking your 401(k)’s vesting schedule. If you’re close to becoming fully vested, waiting just a little longer could mean holding onto thousands more in retirement savings.

Taxes and Penalties to Watch Out For When Moving or Cashing Out a 401(k)

Tax implications are among the most crucial considerations when determining how to handle a 401(k) from a previous employer. Consider the following:

• Rollovers are tax-free if done correctly. Moving your 401(k) into an IRA or a new employer’s plan via a direct rollover won’t trigger taxes or penalties.
• Leaving your 401(k) where it is won’t cost you either. You won’t face taxes or penalties if you keep your money in your former employer’s plan or transfer it to a new one.
• Cashing out comes with steep costs. You’ll owe ordinary income tax based on your tax bracket, plus a 10% early withdrawal penalty if you’re under age 59½–unless you qualify for a rare exception. On top of that, the IRS automatically withholds 20% of your cash-out for taxes, regardless of your income level.

When to Roll Over Your 401(k)

Rolling over your 401(k) can be a smart move in several situations:

• Your new employer’s plan is better. If the new 401(k) offers lower fees, more investment options, or greater flexibility, consolidating your funds may make sense.
• You want more control over your investments. Rolling your 401(k) into an IRA gives you broader investment choices and often lower fees.
• Your new employer doesn’t offer a 401(k). Rolling your 401(k) over to an IRA is a solid alternative when there’s no workplace plan or no employer match available.

Just be sure to request a direct rollover to avoid taxes and early withdrawal penalties.

When to Leave Your 401(k) Where It Is

In some cases, it’s better to leave your 401(k) with your former employer:

• The old plan offers better features. If your former 401(k) has lower fees, stronger investment options, or useful benefits, keeping it may be your best option.
• You’re not ready to make a move. If you’re unsure about your new employer’s plan or IRA options, it’s okay to wait–just make sure you stay on top of account fees and performance.

How Long Do You Have to Decide What to Do With Your 401(k)?

How long can you leave your 401(k) after quitting?

There’s no one-size-fits-all deadline for deciding what to do with your old 401(k), but your balance plays a major role in how long you can leave it untouched. While some plans let you leave your funds indefinitely, others may take action after a certain period.

If your balance is over $5,000, most plans allow you to leave your money in the account for as long as you want. This gives you time to assess your options without pressure, though you won’t be able to make new contributions.

If your balance falls between $1,000 and $5,000, your former employer may automatically roll the funds into an IRA in your name if you don’t take action within a set timeframe. This is designed to preserve your savings, but the investment options and fees in the default IRA may not be ideal.

For balances under $1,000, your employer may choose to cash out the account and send you a check, triggering taxes and potential penalties unless you act quickly to roll it over yourself.

These scenarios represent the most common practices, but every 401(k) plan is different. Be sure to check with your plan administrator so you don’t lose track of your savings, or risk unnecessary taxes.

Final Take

The best options are usually to roll your 401(k) over into an IRA or your new employer’s plan, or simply to leave it where it is, if allowable according to your balance and your plan provider’s rules. Cashing out is almost the worst option. If you’re considering quitting, check your vesting status first to maximize employer contributions — never leave free money on the table.

Review your options before leaving your job to protect your retirement savings.

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