401(k) Rollover vs. Leave It Behind: What To Do With Your Old Retirement Account When You Change Jobs

If you’ve changed jobs in recent years, there’s a good chance you still have retirement savings sitting in a former employer’s 401(k) or 403(b).

Leaving those savings behind isn’t necessarily a mistake. However, former employer plans can come with administrative fees, limited investment choices, and retirement accounts that are disconnected from the rest of your portfolio.

So, what are your options?

In this Bulman Wealth Group article, we’ll examine four choices for an old workplace retirement plan, rollover tax rules, and how your decision can become part of your retirement planning in Roseville, CA.

Evaluating 4 Options for Your Old 401(k) or 403(b)

There isn’t one right answer for everyone. Your decision may depend on investment choices, taxes, access to funds, fees, and the rules of your former and current employer plans.

Option 1: Roll Over to an Individual Retirement Account (IRA)

“Over a career, it’s easy to accumulate old 401(k)s and IRAs across multiple employers, essentially creating a ‘financial garage’ full of disconnected clutter. Consolidating those accounts into an IRA isn’t just about simplicity; it gives you direct control over your asset allocation, fee structures, and tax-efficient income strategies as you approach retirement.”

— Taran Pannu, NSSA®, Financial Advisor at Bulman Wealth Group

Moving an old 401(k) or 403(b) into an IRA can give you access to a wider selection of investments than many workplace plans offer. An IRA can also make it easier to manage multiple former-employer accounts in one place and evaluate future Roth conversions.

Consolidating old accounts can make it easier to view your asset allocation, investment risk, and retirement income, and increase the overall effectiveness of your wealth management in Roseville.

An IRA requires ongoing investment decisions, and moving money out of a workplace plan may mean giving up certain benefits associated with that plan. One example is the Rule of 55, which can allow penalty-free distributions from an eligible employer plan after separating from service during or after the calendar year you turn 55.

Option 2: Roll Over to Your New Employer’s Plan

If your new 401(k) or 403(b) accepts rollovers, moving the old account there can consolidate workplace retirement savings while retaining features associated with employer plans. Depending on the new plan, you may have access to loans or institutional investment choices.

The downside is that you’re limited to the new plan’s investment menu, fees, and administrative rules. Once the rollover is completed, it can’t simply be reversed, so review the plan carefully before making the transfer.

Option 3: Leave Assets in Your Former Employer’s Plan

Leaving the retirement account where it is may make sense if you like the investments, have access to low-cost institutional funds, or value features of the former plan that you may lose by moving the money.

On the other hand, an old account can be easier to overlook. Investment menus and fees can change, and managing several accounts across former employers can make portfolio oversight more difficult.

Option 4: Cash Out the Account

Cashing out is usually the most expensive option from a tax standpoint. A taxable distribution that isn’t rolled over is included in federal taxable income. California residents can also owe state income tax. If you’re younger than 59½, a 10% federal additional tax can apply unless you qualify for an exception. California can also impose an additional 2.5% early-distribution tax. 

Beyond the immediate taxes, withdrawing the balance removes assets that could otherwise remain invested for retirement.

Direct vs. Indirect Rollovers: How Can You Avoid Costly Tax Pitfalls?

How you move the money can be just as important as where you move it.

What Is the Difference Between a Direct and Indirect Rollover?

With a direct rollover, your former employer plan transfers an eligible distribution directly to the receiving IRA or retirement plan. No federal income tax is withheld from the amount transferred, and the rollover itself isn’t taxable unless you’re moving pre-tax assets to a Roth account.

An indirect rollover puts the money in your hands first. For an eligible rollover distribution from an employer retirement plan paid to you, the plan must withhold 20% for federal income taxes.

You then have 60 days to complete the rollover. To roll over the entire original balance, you must replace the withheld 20% with other money. Any taxable portion that isn’t rolled over becomes taxable income and could also face the 10% federal additional tax if you’re under 59½ and no exception applies.

For that reason, a direct rollover is usually the cleaner method when the goal is to move retirement assets without taking a distribution.

Integrating Your Rollover Into Your California Tax and Financial Plan

A rollover shouldn’t be viewed solely as an administrative transfer. It can also create an opportunity to review taxes, retirement income, healthcare expenses, and how your investments are positioned.

“A 401(k) rollover should never be treated as just an administrative task. Moving workplace retirement funds creates a key opportunity to evaluate how those assets interact with long-term healthcare expenses, Social Security timing, and California retirement tax benefits. As a fiduciary, our goal is to align every account transfer with a comprehensive, tax-smart strategy.”

— Taran Pannu, NSSA®, Financial Advisor in Roseville, CA

Roth Conversions

Rolling pre-tax workplace assets into a Traditional IRA doesn’t itself create taxable income when completed properly. Converting some of those assets to a Roth IRA is different: the taxable amount converted is included in income for that year.

For some households, spreading Roth conversions across lower-income years can help manage future taxable retirement income. Evaluating conversions alongside other retirement tax benefits in California is particularly relevant because California residents can owe state income tax on taxable retirement distributions.

Net Unrealized Appreciation

If your former employer plan contains appreciated company stock, you can consider Net Unrealized Appreciation (NUA) rules, which may allow qualifying employer stock to receive different tax treatment. Under the applicable requirements, the cost basis is taxed as ordinary income when distributed, while qualifying NUA can receive long-term capital-gain treatment when the shares are eventually sold.

Rolling employer stock into an IRA can eliminate the opportunity to use NUA treatment. A Bulman financial advisor in Roseville, California can help you evaluate this before completing the rollover.

Healthcare and Future Care Expenses

Account consolidation can also make it easier to see how much of your retirement wealth is held in taxable, tax-deferred, and tax-free accounts.

That information becomes increasingly useful when estimating Medicare expenses, healthcare costs, and long-term care planning in California. Large future withdrawals from pre-tax retirement accounts can create taxable income at the same time healthcare expenses are rising.

“When you’re evaluating fee-only financial planning in Roseville, looking at a rollover in isolation is a missed opportunity. By integrating old 401(k) accounts into a unified wealth management plan, California families can better project future tax brackets, mitigate out-of-pocket medical costs, and structure long-term care planning with clarity.”

— Taran Pannu, NSSA®, Bulman Wealth Group

A Bulman fee-only financial plan for Roseville households can examine these decisions together rather than treating the rollover as an isolated transaction.

FAQs

What are my options for an old 401(k) or 403(b) when I change jobs in California?

You can typically leave the account with your former employer, roll it into an IRA, move it to a new employer’s plan if that plan accepts rollovers, or take a distribution. Taxes, fees, investments, and access to the money can differ significantly among these choices.

Should I roll over my old 401(k) into an IRA or my new employer’s plan?

An IRA may offer more investment choices, while a new employer plan can keep workplace accounts together and retain certain plan-specific benefits. Compare fees, investments, withdrawal rules, creditor protections, and services before deciding. This type of analysis can be part of financial planning in Roseville, rather than making decisions based on convenience alone.

Can I leave my 401(k) with my former employer or will they force a payout?

It depends on the account balance and plan terms. SECURE 2.0 increased the permitted involuntary cash-out limit from $5,000 to $7,000, effective for distributions after 2023. Plans aren’t required to use the full $7,000 limit, so check your former employer’s plan documents before assuming the account can remain there indefinitely.

Need Help Deciding What To Do With Your Retirement Plan?

Changing jobs can be a good time to review old retirement accounts and determine whether they still complement your current investments, tax situation, and retirement goals.

Bulman Wealth Group can help you compare the costs and consequences of leaving an account behind, moving it to an IRA, or transferring it to a new employer plan.

Our advisors can review your former employer accounts as part of your overall retirement and investment picture.

Contact us to schedule a 401(k) rollover review.

Converting an employer plan account or Traditional IRA to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including, but not limited to, a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA.