A trail of breadcrumbs
I’ve made this mistake myself. Years ago, when I changed jobs, I rolled my old 401(k) straight into my new employer’s plan without weighing what an IRA might have offered instead. It felt tidy, and it’s an easy call to make when no one lays out the trade-offs. These days, laying them out is a big part of my job.
Mine at least moved with me. A lot of old 401(k)s don’t.
People born from 1957 to 1964 held an average of 12.9 jobs between ages 18 and 58, and 5.6 of them came before age 25. Every one of those job changes can leave a crumb behind: an old plan, a default fund, a beneficiary picked in a hurry during week one. We call it a “trail of breadcrumbs,” and most folks have one.
It adds up, too. As of July 2025, an estimated 31.9 million 401(k)s had been left behind or forgotten, holding $2.13 trillion (about $66,691 per account, on average).
What are your options with an old 401(k)?
You have four basic options, and each comes with trade-offs:
- Leave it where it is. Usually allowed, with one catch: plans can force out small balances, up to $7,000. If yours is over $1,000, it gets rolled into an IRA the plan picks unless you choose otherwise. At $1,000 or less, the plan can simply cut you a check.
- Roll it into your new employer’s plan, if that plan accepts rollovers.
- Roll it into an IRA. Pre-tax money goes to a traditional IRA, and Roth 401(k) money goes to a Roth IRA.
- Cash it out. It’s taxed as ordinary income, and if you’re under 59½, there’s generally a 10% penalty on top.
The fine print is where the real differences live. Money left in an employer plan keeps the “rule of 55”: leave that job in or after the year you turn 55, and withdrawals from that plan skip the 10% penalty. IRAs don’t get that exception. A 401(k) also generally has broader creditor protection than an IRA, where protection outside bankruptcy depends on state law.
Roth money has its own wrinkle. When you roll a Roth 401(k) into a Roth IRA, the years it sat in the 401(k) don’t count toward the Roth IRA’s five-year clock, unless you already had a Roth IRA open.
Some of these moves can’t be undone, so it’s worth knowing the trade-offs before you pick one.
How can a rollover go wrong?
It usually goes wrong when the check is made out to you.
Say your old plan pays out the average forgotten balance, $66,691, directly to you. The plan has to withhold 20%, so your check comes to $53,353 (yikes). You then have 60 days to get the full $66,691 into the new plan or IRA, which means finding the missing $13,338 somewhere else. Whatever you don’t put back is treated as a withdrawal: taxable, plus the 10% penalty if you’re under 59½ and no exception applies.
The cleaner route is a direct rollover, where the old plan sends the money straight to the new plan or IRA. No check to you, no 20% withholding, no 60-day clock.
Lost track of one?
The Department of Labor now runs a free search tool, the Retirement Savings Lost and Found database. It searches private-employer and union 401(k)s and pensions tied to your Social Security number, and you log in with a Login.gov account. It doesn’t cover IRAs or government plans, and the Labor Department says some records may be outdated, so treat it as a starting point.
How we think about it
Consolidating isn’t about performance. It’s about being able to wrap your arms around your whole financial life and see it on one page. While you’re at it, peek at what the old plan is invested in and who’s listed as the beneficiary. Both tend to get set once and forgotten.
Where that leaves you
What to do with an old 401(k) comes down to what you want the money to do, and when. The right option depends on the plans involved, your age, your tax picture, and what else you own, and that’s where we can actually help.
If you’ve got a trail of breadcrumbs of your own, you know where to find me.
Sources
- Four options for a plan at a former employer: IRS, “Retirement topics – Termination of employment”
- 20% mandatory withholding, 60-day rule, direct vs. indirect rollovers: IRS, “Rollovers of retirement plan and IRA distributions”
- Small-balance force-outs ($7,000 limit; over $1,000 goes to an IRA unless you elect otherwise): IRS Notice 2026-13, “Safe Harbor Explanations – Eligible Rollover Distributions”
- 10% penalty and the age-55 separation exception (not available for IRAs): IRS, “Retirement topics – Exceptions to tax on early distributions”
- Roth 401(k)-to-Roth IRA five-year rule: IRS, “Retirement plans FAQs on designated Roth accounts”
- 12.9 jobs from ages 18 to 58: U.S. Bureau of Labor Statistics, “Number of Jobs, Labor Market Experience, Marital Status, and Health for those Born 1957-1964”
- 31.9 million forgotten 401(k)s, $2.13 trillion, $66,691 average: Business Wire, “‘Forgotten’ 401(k)s Grow to Record $2.1 Trillion of Assets, According to New Analysis by Capitalize”
- Retirement Savings Lost and Found database: U.S. Department of Labor
- Creditor protection for 401(k)s vs. IRAs: Kiplinger, “Is Your IRA Protected from Creditors in Bankruptcy?”
The views presented herein are solely those of Rory Banks and do not necessarily represent the views of RBC Wealth Management. The current status of issues discussed in this article is subject to change based on market conditions and industry fundamentals. Clients should work with their Financial Advisor to develop investment strategies tailored to their own financial circumstances. Past performance is no guarantee of future results.