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What to Do With Old Employer Retirement Plans
It’s common to accumulate retirement accounts as you change jobs. A 401(k) or 403(b) from a previous employer is still your money—but you have a choice in where it lives and how it fits into your overall plan.
Many people leave these accounts untouched for years. Sometimes that’s perfectly fine. Other times, these accounts are forgotten, are not aligned with your investment objectives, or simply create unnecessary complexity.
Reviewing your options can help ensure your retirement savings stay organized and aligned with your overall financial plan.
These options generally apply to both pre-tax and Roth retirement accounts, although tax treatment may differ.
Here are the four most common options:
Leave It Where It Is
You can keep the account in your former employer’s plan, if the plan allows.
Potential advantages:
- No paperwork or transfers required
- Continues tax-deferred growth
- May make sense if the plan has low costs and strong investment options
Things to consider:
- You can no longer contribute
- Investment options are limited to that plan
- The account may become harder to monitor over time - or even forgotten about!
Summary:
This option is simple and requires no action, but you remain limited to that plan’s investment options, features, and fees. If you have multiple old plans, they can begin to create financial clutter.
Roll It Into Your New Employer’s Plan
Many employer plans allow you to transfer old retirement accounts into your current plan.
Potential advantages:
- Consolidates retirement accounts
- Easier to track and manage
- Maintains tax-deferred status
Things to consider:
- Investment options are limited to the new plan
- Fees and plan quality vary
Summary:
This option keeps everything in one place, but the plan’s investment options and overall cost structure are important factors.
Roll It Into an IRA
You can transfer the account into an Individual Retirement Account (IRA) held at a custodian of your choice or managed b y your advisor.
Potential advantages:
- Broader range of investment choices
- Ability to align investments with your overall plan
- Opportunity to consolidate multiple accounts
- Investments must be selected and monitored
- Fees vary depending on the provider and investments
This option often provides the most flexibility and control, but also requires ongoing investment management.
Cash It Out
You can withdraw the funds as cash, although this option often has tax implications and should be reviewed carefully.
Things to consider:
- Withdrawals are generally subject to income tax
- A 10% early withdrawal penalty may apply if under age 59½
- Funds no longer grow tax-deferred
This provides immediate access to funds, but taxes, penalties, and lost future growth can significantly reduce long-term value.
You should consult a qualified tax professional before taking a withdrawal.
Key Planning Considerations
Regardless of which option you choose, there are several important rules and planning factors to be aware of:
- Direct vs. Indirect Rollovers
When moving retirement funds, a direct rollover—where funds move directly between institutions—can help avoid tax withholding and potential penalties.
If funds are paid to you instead, 20% may be withheld for federal taxes, and the rollover must be completed within 60 days to avoid taxes and penalties.
- Age 55 Withdrawal Exception
If you leave your employer during or after the year you turn age 55, you may be able to access that employer’s retirement plan without the 10% early withdrawal penalty. This exception does not generally apply to IRAs.
- Required Minimum Distribution (RMD) Timing
Employer plans may allow you to delay required minimum distributions if you are still working for that employer.
- Back-door Roth Timing
In some cases, keeping funds in an employer plan instead of an IRA may help avoid certain tax complications when using backdoor Roth IRA contribution strategies. A qualified tax professional can help determine what applies to your situation.
Why This Decision Matters
Old retirement accounts are an important part of your financial picture. Where they are held can affect:
- Fees and expenses
- Investment flexibility
- Tax planning opportunities
- Organization and simplicity
In many cases, the goal isn’t just consolidation—it’s making sure each piece is working efficiently within your overall plan.
Small decisions like this can have a meaningful impact over time.
Final Thoughts
If you have an old employer retirement account, it may be worth reviewing your options. Reducing financial clutter can lead to a simplified financial life and help you stay organized.
The right decision depends on your goals, your current plan features, and how the account fits into your broader financial picture.
If you have questions about your former employer retirement plans, click here to schedule a conversation today and review the options that may be best for you.
Important Disclosures
This material is for informational and educational purposes only and is not intended as individualized investment, tax, or legal advice. Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. Please consult your own tax advisor, attorney, and/or financial professional regarding your specific circumstances.