How Do You Transfer a 401K When Changing Jobs?

With increasing wages and a tightening job market, the recent past has seen many workers change jobs. This implies many who are switching jobs have 401K retirement plans with former employers. Luckily, such a workplace retirement account is made portable. However, moving a 401K and deciding when to do it can be pretty challenging.

If you are laid off or looking to change jobs, your 401K account is probably the last thing to cross your mind. However, it is beneficial to incorporate this money into your moving plans – though you do not have to do it immediately. As you prepare to concentrate on your 401K account, this article will inform you how to transfer a 401K when changing jobs.

Should You Roll Over Your 401K Account or Let It Stay In Your Last Employer’s Plan?

First Option: Maintain the Savings With Your Last Employer’s Plan

If you can keep your last employer’s 401K account and the plan’s investment choices satisfy you, you do not have to roll over. This option offers the most incredible convenience, though you still need to analyze your options.

Among the things you should put into consideration when deciding whether to maintain your last employer’s plan are:

The monetary worth of the account

If your last employer’s 401K plan is less than $5,000, you might need to transfer the money. If the amount is less than $1,000, then your previous employer will probably compensate you with an appropriate check.

On receiving such a payment, you should deposit the check into an IRA or your present employer’s 401K plan within 60 days of receiving the payment. This helps avoid taxation of the money and, for those below 59 ½ years old, an early withdrawal penalty of 10%.

Employer stock

For former employer accounts that include publicly-traded stock and whose stock has considerably increased in value, tax breaks realized from the in-kind stock distribution will be lost by rolling over the account into an IRA or a new employer’s 401K plan.


For previous employers who contribute matching funds to the 401K account, the money usually vests with time. If you are not entirely vested when leaving the employer, you only get to keep a part of the match – or none. Ensure you talk to the plan administrator to comprehend your company’s vesting schedule.


401K accounts are convenient means of putting aside retirement funds, though they are associated with transaction and maintenance fees. Such fees can have a considerable effect on long-term returns. While evaluating your options, ensure you completely understand the amount of fees you are paying.

Second Option: Transfer the Funds From the Old 401K Account to New Employer’s Account

Moving an old 401K plan into a new employer’s allowed retirement plan is an option when changing jobs. For example, the current plan might have reduced fees or better suitable investment options for your financial targets. In addition, by rolling over the old 401K account into a new company, keeping track of the retirement savings is easier because you compile everything together.

Among the things to consider when thinking about rolling over your 401K into your current employer’s plans include:

Direct rollovers

These rollovers allow you to transfer money from an old plan into your current employer’s 401K without penalties or incurring taxes. You are then left to work with the current employer’s plan administrator to choose how to share the savings into the current investment options.

Transfer rules

Failing to adhere to 401K transfer rules can result in additional taxes and penalties. For instance, failing to perform a direct rollover and getting the money from your last employer’s plan through a check incur a compulsory 20% withholding. In addition, if you deposit the check any later than 60 days from receiving it, you are hit with an early-withdrawal penalty of 10% in addition to any taxes. This applies if you are below 59 ½ years old.


An employer’s retirement plan might let you borrow funds from your 401K plan. By rolling your account into a new plan, you can have a more significant balance for borrowing. It would be best if you reimbursed yourself over time with interest.

Such loans are often only applicable to current employees. Familiarize yourself with the long-term effects of getting loans against your account, consider your options, and chew over the advantages and disadvantages with an advisor.

401k written in a note.

Transferring 401K to a Current Employer

Move Funds To Current Employer’s 401K

Though you will not incur any penalty for maintaining your old employer’s plan, you may miss out on some perks. Funds left in the plan of the previous organization cannot be used on a loan basis. More notably, investors can lose track of previous plans’ investments easily. For an account having $1,000 to $5,000, your organization needs to roll over the funds to an IRA for you if you are forced out of the plan.

Working on 401K Rollover

If you choose to roll over your old account, contact your current company’s 401K administrator for a new account address. Provide the address to your previous employer to have the funds transferred straight from the old plan into the new one or to you by a check you give your current 401K administrator. This transfers all the balance without penalties or taxes and is known as a direct rollover.

Another more straightforward option is performing direct trustee-to-trustee transfers. This procedure is electronically performed between the plan administrators, getting the burden off your back.

A somewhat riskier approach is the 60-day or indirect rollover. Here, you request your previous employer to send you a check. Unfortunately, this manual approach attracts a compulsory tax withholding – the organization considers this as cashing out your account and needs to withhold 20% of the money as federal taxes. This implies that $100,000 in your 401K account reduces to an $80,000 check even though the clear intention is to move the funds into a different plan.

You are then left with a 60-day window to deposit the balance into your current company’s 401K account and avoid taxation on the whole amount. You also avoid a possible early withdrawal penalty of 10%. However, the withheld $20,000 needs reporting on your tax return and can elevate your tax bracket.


Before settling on the next course of action for an old 401K plan, it is essential to understand the available options. Of course, the greatest pitfall to be aware of is the possible withdrawal penalty and taxes you incur by failing to observe the 60-day rule. However, by following the guide above, you should be able to transfer your 401K conveniently when changing jobs.

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