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401(k) Spring Cleaning: What To Do With Your Old Retirement Accounts

If you’re in your 30s or 40s, there’s a good chance your career path looks like a game of hopscotch. You’ve put in the years, leveled up, and likely switched jobs two or three times by now. But with every career jump, there is one thing we almost always leave behind: the old 401(k).

It’s incredibly common. You start a new job, fill out the mountain of HR paperwork, and completely forget about the retirement account building up at your last company. If you’ve done this a few times, you now have little pockets of money scattered across the internet, protected by passwords you may not remember.

Leaving those old accounts behind might feel like a problem for “future you,” but it’s important to understand your choices. When you leave an employer, you typically have four primary options for your existing 401(k).

The 4 Pathways for an Old 401(k)

Option 1: Leave the money in your former employer’s plan

If your account balance is above a certain minimum (usually $5,000 or $7,000), most companies will allow you to keep your money where it is.

  • The Pros: It requires zero immediate effort, and if you like the specific, low-cost investment options in that plan, your money stays put.
  • The Cons: You might face sneaky administrative fees that are frequently passed on to you after your leave. The investment options in company plans are limited. Plus, managing multiple logins across different websites can make it hard to maintain a cohesive investment strategy.

Option 2: Roll over the assets to your new employer’s plan

If your new company allows incoming transfers, you can move your old retirement cash straight into your new workplace plan.

  • The Pros: It consolidates your retirement savings, making it much easier to track.
  • The Cons: You are still restricted to your new employer’s specific menu of 15 to 20 mutual funds, which might be fewer choices than you’d like.

Option 3: Roll over the money into an Individual Retirement Account (IRA)

You can move your funds via a Direct Rollover into a personal IRA. Because a direct rollover moves the money straight from provider to provider without hitting your personal bank account, it is a tax-free transfer.

  • The Pros: Total control over your investment runway. Instead of a small menu of funds, you can choose from thousands of different stocks, bonds, and low-cost ETFs. It also clears up digital clutter by keeping your funds in one central place.
  • The Cons: You lose access to any specific features unique to 401(k) plans.

Option 4: Cash out the account value

You can choose to liquidate the account and have a check sent directly to you.

  • The Pros: You get immediate access to cash for urgent liquidity needs.
  • The Cons: This is usually the most expensive option. If you are under age 59½, the distribution is generally hit with an immediate 10% IRS early-withdrawal penalty, and the entire amount is taxed as ordinary income. This can significantly reduce the actual amount that ends up in your pocket and disrupts your long-term compound growth.

This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Investment strategies do not assure a gain or prevent a loss in a declining market. There is no guarantee that any investment strategy will be successful or will achieve their stated investment objective. Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. Alpha Wealth Advisors and LPL are separate entities.