Financial Living Blog

What Should You Do With an Old 401(k)?

Written by Advance Capital Team | Feb 11, 2026 4:11:32 PM

Changing jobs is a normal part of most careers today. But each time it happens, many people are left with the same lingering question: What should I do with my old 401(k)? Over time, it’s easy to accumulate multiple retirement accounts, each with its own rules, investments, and paperwork, making it harder to stay organized and intentional.

There’s no single right answer for everyone. The right decision depends on your goals, your tax situation, and how each option fits into your broader financial plan. Understanding the pros and cons of each option can help you make a more confident, well-informed decision.

Key Questions to Consider

Before making a decision about an old 401(k), it’s helpful to step back and consider a few important factors:

  • What fees and expenses are you paying now, and how do they compare to other options?

  • Are the investment choices aligned with your goals, risk tolerance, and time horizon?

  • How important is simplicity versus maintaining multiple accounts?

  • What flexibility will you need for withdrawals or income later in life?

  • How does this account fit into your overall tax and retirement strategy?

Taken together, these questions help frame the decision beyond just convenience. The goal isn’t simply to move an account, but to understand how each option supports your long-term retirement plan. In many cases, the best choice is the one that balances cost, flexibility, and simplicity in a way that fits your broader financial picture.

Comparing Your 401(k) Options at a Glance

 

Option

Why Some People Choose This

Potential Tradeoffs
to Consider

Leave it in a former employer's plan
  • No immediate action required.
  • May be less expensive, depending on plan fees.
  • Often includes strong creditor protections.
  • Potential access at age 55.

  • Managing multiple accounts can increase complexity.

  • Limited flexibility and service once you’ve left the employer.

  • Rules vary by plan for withdrawals and investment changes.

  • The plan provider may charge additional fees because you're no longer an employee.

  • RMD processing from a 401(k) must be separate from other IRA assets, and could generate additional fees.

Roll it into a new employer's 401(k)

  • Consolidates retirement savings in one place, simplifying account management.

  • Continues tax-deferred growth.

  • May preserve certain plan features depending on the employer.

  • Delayed RMDs (if still working after RMD age).

  • Not all plans accept rollovers.

  • Investment options may be limited.

  • Distribution rules are set by the plan, not you.

  • If you opt for an "indirect rollover," where the funds are distributed to you first, you could face unexpected taxes and penalties.

Roll it into an IRA

  • Depending on the provider, you will likely have access to much wider range of investment options.

  • Easier coordination with your overall financial plan.

  • Simplifies monitoring and rebalancing over time.

  • If you utilize an Investment Advisor, you should expect to receive a higher level of investment advice and planning services compared to a company 401k plan.

  • Option to aggregate RMDs from one account.
•    Easier coordination with your overall financial plan.
•    Simplifies monitoring and rebalancing over time.
•    If you utilize an Investment Advisor, you should expect to receive a higher level of investment advice and planning services compared to a company 401k plan
•    Option to aggregate RMDs from one account

  • Costs vary based on investments and advisory services.

  • Some employer-plan features may no longer apply.

  • Creditor protections vary by state and situation.

Convert it to a Roth IRA

  • Future withdrawals in retirement are Tax-Free, over 59 ½ and account held for at least five years.

  • Exempt from RMD’s.

  • Pre-Tax contributions converted to Roth are subject to ordinary income tax in the year of the conversion.

  • If converted from a 401(k), you may lose creditor protection.

Cash it out (generally not recommended)

  • Immediate access to funds.

  • Typically triggers income taxes.

  • Early withdrawal penalties may apply.

  • Permanently reduces future retirement growth.

Common Mistakes to Avoid

  • Cashing out unintentionally and triggering taxes and penalties.

  • Using an indirect rollover, which can create withholding and timing issues.

  • Missing rollover deadlines.

  • Leaving transferred funds in cash for too long.

  • Making a decision without understanding the tax impact.

How Advance Capital Management Can Help

At Advance Capital Management, we guide clients through the decision-making process to ensure their retirement savings work as hard as they do. We help clients compare options side by side, avoid costly rollover mistakes, and align decisions with long-term retirement goals. Contact us today to set up a consultation to discuss your specific situation. 

 

Advance Capital Management is a registered investment adviser.  Registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

 
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