Guide to Transferring 401(k) to a New Job

By Jamie Cattanach · January 24, 2023 · 14 minute read

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Guide to Transferring 401(k) to a New Job

It’s easy to forget about old 401(k) plans when changing to a new job. Some people forget about it because the company that manages it never reminds them. On the other hand, others are aware of their old account, but they’ve been putting off the rollover because it sounds hard.

Many companies don’t make the process easy for customers to roll over their 401(k) accounts from previous jobs. But it can be worth the inconvenience.

By not rolling it over, you might be losing some serious cash. That’s right — losing money, so it’s easy to miss. Here are a few key reasons to prioritize a 401(k) rollover.

Key Points

•   Rolling over a 401(k) may save you money — if your new 401(k) plan or rollover IRA charge lower fees.

•   Another reason to roll over a 401(k) is if your new plan or rollover IRA give you access to better investment options.

•   You don’t have to roll over your 401(k) to a new employer’s plan, but consolidating your 401(k) savings may help you manage them better.

•   If you request that the funds from a 401(k) rollover be sent to you directly, you have 60 days to send the funds to another plan or IRA account. If you miss the deadline, the IRS will typically consider the rollover a distribution, and you’ll be taxed and possibly fined for the early withdrawal.

•   Some 401(k) plans offer financial services, such as financial advisor consultations, to help employees achieve their retirement goals.

3 Reasons to Transfer Your 401(k) to a New Job

It may seem easier to leave your 401(k) as it is and not worry about the hassle of transferring it to a new job. However, the following are three main reasons to rollover a 401(k):

1. You May Be Paying Hidden Fees

All sorts of fees go into effect when you open a 401(k), including record keeping, maintenance, and fund fees. Expressed in a percentage, these fees inform the expense ratio of a plan.

Employers may cover those fees until you leave the company. Once you’re gone, that cost might shift to you without you realizing it. If the fees are too high with your previous employer’s 401(k), rolling over a 401(k) can be advantageous.

Fees matter: When you pay a fee on your 401(k), you’re not just losing the cost of the fee but also all the compound interest that would grow along with it over time. The sooner you roll your plan over, the more you could potentially save.

2. You Might Be Missing Out on Better Investments

If you aren’t happy with the investment options in your old 401(k) and your new employer accepts rollover 401(k)s, you might be able to save money while investing in a broader range of investment vehicles.

401(k) accounts grow at different rates depending on which assets you invest in. If the retirement savings plan at your new company offers a selection of stocks and bonds that better aligns with your financial goals, it might be time to initiate a rollover.

The money sitting in your old 401(k) could grow faster if you roll it over into a new plan — it’s certainly worth investigating the growth rates of each. Keep in mind that investors can lose money when investing, too, so it always makes sense to consider your personal risk tolerance when deciding how to invest in your retirement accounts.

Also, if you leave your 401(k) where it is, you may think about it infrequently, so your portfolio may drift from your desired asset allocation as you age. It’s important to keep tabs on your investments to ensure they are on track and appropriate for your time horizon and goals.

3. You Could Lose Track of Your 401(k) Account

It’s common for people to lose track of old 401(k) accounts. According to some estimates, nearly 20% of all 401(k) assets in the U.S. are lost or missing. Rolling over a 401(k) to your new employer’s plan may be a way to keep track of your retirement assets.

Losing track of a 401(k) account is not necessarily the fault of an investor — it’s just logistics. It’s harder and more time-consuming to juggle multiple retirement accounts than it is to juggle one. Until you retire, you’ll manage two (or more) websites, two usernames and passwords, two investment portfolios, and two growth rates for decades.

And if you leave this next job to go to a third (or a fourth, or a fifth), the 401(k) plans could pile up, creating even more tracking work for you. Plus, when you’re no longer with an employer, you might miss alerts about changes that may occur with an old retirement plan.

Recommended: How to Roll Over Your 401(k)

Do You Have to Rollover Your 401(k) to a New Employer?

You do not necessarily have to roll over your 401(k) to a new employer or rollover your funds into an individual retirement account (IRA). If you are pleased with your old employer’s retirement plan options and fees, you can leave the funds in that 401(k), provided the employer allows it. But if you keep your money in your old employer’s 401(k), you cannot make additional contributions to the account.

If you have between $1,000 and $5,000 in your old employer’s 401(k) account, the employer may roll over your account into an IRA if you do not choose to receive the money or roll it over yourself. If you have less than $1,000 in your 401(k), the employer may send you a check of the funds, with less than 20% income tax withholding, if you do not choose to roll it over within 60 days of leaving the employer.

Recommended: What is an IRA and How Does it Work?

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What to Do With Your 401(k) After Getting a New Job

When you get a new job, and you have a 401(k) from your previous employer, you have several options for what to do with the money. As mentioned above, you can leave the money in your old employer’s 401(k) plan. But if you don’t like your old employer’s 401(k) plan and options, you can do one of the following:

Roll Over a 401(k) to Your New Employer’s Plan

If your new employer offers a 401(k) plan and you are eligible to participate, you can roll the money over from your old plan to your new plan. Consolidating your 401(k)s can help you manage all of your retirement savings in one place, but it’s important to compare the fees, investment options, and other features of each plan before making a decision.

Rolling over a 401(k) might seem intimidating or inconvenient at first, especially if you’re moving onto your second job and this is the first time you’ll be rolling over a 401(k). The actual process of rolling over a 401(k) isn’t too complicated once you’ve decided where your existing funds will go.

Roll Over a 401(k) to an IRA

An IRA is another option for your 401(k) funds. Rolling a 401(k) into an IRA can give you more control over your investments and potentially lower fees, but they do not come with employer-provided benefits, such as matching contributions.

Recommended: IRA vs 401(k): What Is the Difference?

Cash Out Early

There is always the option of cashing out your 401(k). Should you choose to cash out your 401(k) and you’re younger than 59 ½ years old, you will have to pay taxes on the money, and perhaps an additional 10% early withdrawal fee.

There are some circumstances when the 10% fee is waived (but not the income tax), such as when the funds will be used for eligible medical expenses, among other circumstances.

What Happens to Your 401(k) if You’ve Been Fired?

If you’ve been fired, your 401(k) account is typically unaffected, and you will still have access to the funds you’ve contributed to the account and vested employer contributions, known as the 401(k) vested balance. However, you lose your right to any remaining unvested funds following voluntary or involuntary termination.

Nonetheless, the rules regarding your access to the funds may depend on the terms of the specific 401(k) plan and the reason for your termination.

Recommended: What Happens to Your 401(k) When You Leave a Job?

How Long Do You Have to Transfer Your 401(k)?

If you are rolling over your 401(k) to a new employer’s plan or an IRA, you generally have 60 days from the date you receive the funds to deposit them into the new account. If you do not complete the rollover within 60 days, the funds will be considered a distribution and subject to taxes and penalties if you are under the age of 59 ½.

Advantages of Rolling Over Your 401(k)

Rolling over your 401(k) to a new plan can benefit your overall financial plan. Here are a few ways this transition might help your financial well-being.

One Place for Tax-Deferred Money

Transferring your 401(k) to your new employer’s plan can help consolidate your tax-deferred dollars into one account. Keeping track of and managing one account may simplify your money management efforts.

A Streamlined Investment Strategy

Not only does consolidating your previous 401(k) with your new 401(k) make money management more straightforward, it can also streamline your investment strategies.

Financial Service Offerings

Some 401(k) plans offer financial services, such as financial advisor consultations, to help employees achieve their retirement goals. If your previous employer didn’t provide this service and your new plan does, taking advantage of this offering may help you achieve an investment plan that meets your exact goals rather than a standardized option.

Disadvantages of Transferring 401(k) to a New Job

While there are several advantages to a 401(k) rollover to a new job, there are also some potential disadvantages. Some drawbacks of rolling over a 401(k) from a previous employer to a new employer’s plan include the following:

•   Loss of certain investment options: The new employer’s plan may offer different investment options than the previous one, limiting your ability to diversify your portfolio.

•   Increased fees: The new employer’s plan may have higher fees associated with it, which could reduce the overall growth of your investment over time.

•   Delays: The process of rolling over your 401(k) can take time, which could cause delays in accessing your funds.

How to Roll Over Your 401(k)

So, how do you transfer your 401(k) to a new job? If you decide to roll your funds into your new employer’s 401(k), you’ll most likely need to:

1.    Contact the plan administrator to arrange the rollover. You may need to choose the types of investment you would like before you initiate the rollover. If not, you can take a lump-sum transfer and allocate the funds gradually to different investments of your choosing.

2.    Complete any forms required by your employer for the rollover.

3.    Request that your former plan administrator sends the funds via electronic transfer or a check so you can move the funds directly to the new plan administrator.

You may have to wait until your employer’s next open enrollment period to complete the rollover, but you might consider using that time to research the plan’s investment options so you’ll be ready when the time comes.

401(k) Rollover Rules

You may select a direct, trustee-to-trustee, or indirect rollover when requesting a transfer. With a direct rollover, the check is made out to the financial institution (for your benefit). Because the funds are directly deposited into the new account, no taxes are withheld. Similarly, a trustee-to-trustee transfer occurs between plan administrators but the funds change hands electronically.

With an indirect rollover, the check is payable to you, with 20% withheld for taxes. You’ll have 60 days to roll over the funds (80% of your previous plan) into an IRA or other retirement plan. If you want to contribute the full amount of your previous plan, you can add money to bring the lump contribution back up to the balance before rollover. At that point, you’d be able to count the 20% withheld as taxes paid.

Rolling Over a 401(k) Into an IRA

If you choose to roll your 401(k) funds into an IRA that’s not employer-sponsored, a direct rollover is a method that takes most of the guesswork out of the transfer. This means the funds will be taken from your previous account and rolled directly into the new one.

Doing it this way should prevent your previous lender from sending you a check, resulting in unforeseen early withdrawal tax situations.

Opening a new retirement account online is relatively straightforward, but there are some steps to opening an IRA that might be worth reviewing before you start. Once your funds are rolled over, you can choose the investments that work for your retirement goals.

Recommended: Rollover IRA vs. Traditional IRA: What’s the Difference?

Here are the general steps to roll over a 401(k) into an IRA:

1.    Choose an IRA custodian: This is the financial institution that will hold your IRA account. Some popular choices include brokerage firms, banks, and credit unions.

2.    Open an IRA account: Once you have chosen an IRA custodian, you need to open an IRA account. You will need to provide personal information such as your name, address, and Social Security number.

3.    Request a 401(k) distribution: Contact the plan administrator of your old employer’s 401(k) and request a distribution of your account balance. You will need to specify that you want to do a “direct rollover” or “trustee-to-trustee” transfer to your new IRA account, since these are the most straight forward transfers.

4.    Provide IRA custodian information: Give your old employer’s 401(k) plan administrator the IRA custodian’s name, address, and account information, so they know where to send the funds.

5.    Wait for the funds to be transferred: The process of transferring funds can take several weeks, so be patient.

6.    Monitor the account: Once the rollover is complete, monitor your IRA account to ensure that it has been funded and that the balance is correct.

7.    Invest your funds: Once the funds have been transferred to your IRA account, you will need to invest with the transferred funds.

Remember that your 401(k) plan administrator may have specific procedures for rolling over your account, so be sure to follow their instructions. Also, there are some rules to follow, such as the 60 days rollover rule; it’s essential to consider these to avoid penalties.

The Takeaway

There are many benefits to rolling over a 401(k) after switching jobs, including streamlining your retirement accounts and directing your money to suit your individual financial needs and goals. While some may view it as inconvenient, going through the process, whether you want to roll over a 401(k) into your new employer’s plan or an IRA, may help you build wealth for retirement.

If you have an old 401(k) you’d like to roll over to an online IRA, SoFi Invest® can help. With a SoFi Roth or Traditional IRA, investors can access investment options, member services, and our robust suite of planning and investment tools. And SoFi makes the 401(k) rollover process seamless and straightforward — with no need to watch the mail for your 401(k) check. There are no rollover fees, and you can complete your 401(k) rollover quickly and easily.

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Should I roll over my 401(k) to new employer?

Rolling over your 401(k) to your new employer may be a good idea if the new plan offers better investment choices or if consolidation leads to lower account fees. Another benefit is convenience — it’s easier to manage one account than two. That said, if control is most important to you, rolling over your 401(k) to an IRA may be the better option.

How long do you have to move your 401(k) after leaving a job?

You typically have 60 days from the date of distribution to roll over your 401(k) from your previous employer to an IRA or another employer’s plan. Otherwise, it will be considered a taxable distribution and may be subject to penalties. However, some 401(k) plans may have different deadlines for rolling over your funds, so check with your plan administrator for specific details.

How do I roll over my 401(k) from my old job to my new job?

To roll over your 401(k) from your old job to your new job, you should contact the plan administrator of your new employer’s 401(k) plan and request a direct rollover or trustee-to-trustee transfer from your old plan to your new plan. Provide the necessary account and personal information and follow the instructions provided by the plan administrator to complete the rollover process.

What happens if I don’t roll over my 401(k) from my previous employer?

You generally are not required to roll over a 401(k) from a previous employer to your new employer’s 401(k) or an IRA. However, some experts recommend rolling over a 401(k) to a single account to simplify your retirement investments.

You may also be interested in:

What Is a Stock Market Crash?

What Happens to Your 401(k) When You Leave Your Job?

Can I Roll a 401(k) Into a Roth IRA?

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