The short answer
You have four options: leave it where it is, move it into your new employer’s plan, roll it into an IRA, or cash it out. Each one comes with trade-offs.
I’ve been there myself. Years ago, I rolled an old 401(k) into my new employer’s plan without weighing the alternatives. It’s an easy call to make when no one lays out the trade-offs.
The four options
- Leave it. Usually allowed, though plans can force out balances of $7,000 or less.
- Move it to your new plan, if the new 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 unless an exception applies.
The Roth rule that changed
Roth 401(k)s used to come with required minimum distributions, while Roth IRAs didn’t. That was a common reason to roll a Roth 401(k) into a Roth IRA.
Starting in 2024, that difference went away. Under the IRS rules today, required minimum distributions don’t apply to Roth IRAs or to Roth accounts in a 401(k) while the owner is alive.
That doesn’t make one option better than another. It just means one old reason to move the money is gone, and the others are still worth weighing.
The trade-offs that don’t show up on the statement
- The rule of 55. Money left in an employer plan can come out without the 10% penalty if you leave that job in or after the year you turn 55. IRAs don’t get that exception.
- Creditor protection. A 401(k) generally has broader protection than an IRA, where protection outside bankruptcy depends on state law.
- Seeing the whole picture. Fewer accounts make it easier to wrap your arms around everything and keep beneficiaries current.
Where that leaves you
Which option fits comes down to what you want the money to do, and when. That depends on the plans involved, your age, your tax picture, and what else you own, and that’s where we can actually help.
For the longer version, including the rollover mistake that can turn into a tax bill, see Old 401(k)s: What to Do With the Ones You Left Behind
You know where to find me.
Sources
- Four options for a plan at a former employer: IRS, “Retirement topics – Termination of employment”
- Small-balance force-outs ($7,000 limit): IRS Notice 2026-13, “Safe Harbor Explanations – Eligible Rollover Distributions”
- No RMDs for Roth IRAs or designated Roth accounts while the owner is alive: IRS, “Retirement plan and IRA required minimum distributions FAQs”
- Roth 401(k) RMDs eliminated starting in 2024 (SECURE 2.0): The Motley Fool via Nasdaq, “Don’t Forget About These 3 Required Minimum Distribution (RMD) Rule Changes From 2024”
- Age-55 separation exception (not available for IRAs): IRS, “Retirement topics – Exceptions to tax on early distributions”
- Creditor protection for 401(k)s vs. IRAs: Kiplinger, “Is Your IRA Protected from Creditors in Bankruptcy?”