You accepted a new job…. Congratulations.
You’re thinking about your first day, your new team, and maybe even a bigger paycheck.
Your old 401(k)?
It probably isn’t at the top of your list.
That’s understandable. But it’s also where many people make one of the biggest financial mistakes of their careers.
We’ve seen people unknowingly trigger taxes, pay penalties they didn’t expect, or make paperwork mistakes that temporarily tied up tens of thousands of dollars. The good news is that most of these situations are avoidable when you understand your options before making a move.
A rollover mistake could trigger taxes, withholding, or lost retirement growth. Here’s what to know before moving your old 401(k).
Your 401(k) Options
When you leave a job, you generally have four choices for your 401(k):
- Leave it with your former employer.
- Roll it into your new employer’s retirement plan.
- Roll it into an IRA.
- Cash it out.
For many people, a direct rollover into an IRA or a new employer’s 401(k) allows retirement savings to continue growing without creating a taxable event.
Not every retirement account can be rolled into every other type of retirement account. Before making a decision, review the IRS Rollover Chart to see which rollovers the IRS allows.
The best decision depends on your retirement goals, investment options, fees, and tax situation.
Retirement planning isn’t a one-size-fits-all answer, which is why it’s worth slowing down before completing the paperwork.
Why This Decision Matters
Changing jobs has become part of modern careers.
As people move from one employer to another, retirement accounts often get left behind.
Today, Americans have nearly 32 million forgotten 401(k) accounts holding more than $2 trillion in assets.
Some continue growing. Others slowly lose ground because of higher fees, outdated investments, or simply because no one is paying attention.
The biggest mistake isn’t always forgetting the account. Sometimes it’s moving it the wrong way.
A Real Story About a $60,000 Surprise
One family came to us after changing jobs.
They had about $300,000 in their former employer’s 401(k) and wanted to roll it into an IRA.
We offered to help with the paperwork.
They appreciated the offer but decided to complete everything on their own.
A few weeks later, the rollover check arrived.
Instead of $300,000, it was roughly $240,000.
Naturally, they called and asked the question anyone would ask.
“Where did the other $60,000 go?”
The answer came down to one box on the paperwork.
Instead of requesting a direct rollover, they accidentally requested an indirect rollover.
Because of IRS rules, the retirement plan withheld 20% for federal taxes before sending the check.
At that point, they had two choices.
They could deposit the $240,000 into the IRA and potentially treat the missing $60,000 as a taxable distribution.
Or they could come up with another $60,000 from their own savings, complete the full rollover, and wait until tax time to recover the withholding.
Fortunately, they had the resources to do that.
Many families don’t.
One small paperwork mistake created unnecessary stress and could have become a very expensive lesson.
That’s why we encourage people to treat a rollover as more than just a paperwork decision and consider how it fits into their tax planning strategy before moving the money.
Understanding Your 401(k) Options
Every situation is different, but most people choose one of four paths.
- Leave the money where it is
Many employer plans allow former employees to keep their retirement savings in the existing plan.
If the investment options are strong and the fees are reasonable, this may be perfectly acceptable.
The downside?
Over time, it’s easy to accumulate multiple retirement accounts that become harder to manage.
- Move it into your new employer’s plan
Some people prefer having all of their retirement savings in one place.
Before making that move, compare the new plan’s investment choices, fees, and available features.
Not every employer plan offers the same value.
- Roll it into an IRA
For many investors, an IRA offers broader investment choices and greater flexibility.
It can also make it easier to consolidate retirement accounts from several former employers.
A properly completed direct rollover generally allows the money to move without triggering current taxes.
- Cash it out
This is usually the most expensive option.
If you’re younger than 59½, you may owe ordinary income taxes and an additional 10% early withdrawal penalty.
Even more important, you’re giving up years or decades of potential tax-deferred growth.
While every situation is unique, cashing out should rarely be the default decision.
Direct Rollover vs. Indirect Rollover
This is one of the most common sources of confusion.
A direct rollover sends your retirement savings directly from one qualified retirement account to another. Because you never receive the money yourself, the transfer generally avoids mandatory tax withholding.
With an indirect rollover, the money is sent to you first.
In many cases, the plan is required to withhold 20% for federal taxes before sending the funds.
That’s exactly what happened in the story above.
Understanding this distinction before completing the paperwork can save you significant frustration.
How to Decide What’s Right for You
Instead of asking which option is best, ask yourself a few better questions.
Are the investment choices in my new employer’s plan better or worse than what I have today?
How much am I paying in fees?
Would consolidating my retirement accounts make my financial life easier?
Do I want greater investment flexibility?
Will this decision support the retirement I’m trying to build?
If you’re comparing retirement plans, the U.S. Department of Labor’s guide, What You Should Know About Your Retirement Plan, can help you better understand plan features, fees, and your rights as a participant.
Questions like these often lead to better decisions than simply asking where the money should go. They also remind you that your old 401(k) isn’t an isolated account. It’s one piece of your overall financial plan, and the right rollover decision should support your long-term goals.
Common Mistakes We See
Over the years, we have noticed the same mistakes happen repeatedly.
People leave retirement accounts behind and eventually lose track of them.
They cash out because it seems convenient without realizing the long-term cost.
They complete rollover paperwork without understanding the difference between a direct and indirect rollover.
Or they focus entirely on moving the money while overlooking fees, investment choices, and how the account fits into their overall financial plan.
The paperwork is important.
The strategy behind the paperwork is even more important.
The Bottom Line
A new job is an opportunity to move your career forward. It should also be an opportunity to take a fresh look at your retirement plan.
Your 401(k) represents years of disciplined saving. Before making a decision, understand your options, compare costs, and make sure the paperwork reflects exactly what you’re trying to accomplish.
A little planning today can help you avoid costly mistakes tomorrow.
Keep the JOY. Skip the Tax Surprises.
Changing jobs can open the door to new opportunities. Your retirement plan deserves the same attention as your next career move.
The Mitlin Team can help you understand your options, avoid costly mistakes, and build a plan around what matters most to you. We can also work with your tax professional when needed, so each decision supports both your life today and your ideal tomorrow.
If you are changing jobs or still have a 401(k) with a former employer, schedule your free discovery meeting with the Mitlin Team today.
Frequently Asked Questions
What should I do with my 401(k) when I change jobs?
Most people either leave it with their former employer, roll it into their new employer’s plan, move it into an IRA, or cash it out. The right choice depends on your financial goals, taxes, investment options, and overall retirement plan.
Is rolling over a 401(k) taxable?
A properly completed direct rollover generally isn’t taxable. Certain transactions, including indirect rollovers and Roth conversions, may create tax consequences.
Is it better to roll my 401(k) into an IRA?
For many people, an IRA offers greater flexibility and a wider range of investment choices. Others may prefer keeping retirement savings inside an employer-sponsored plan. The best choice depends on your personal situation.
Can I leave my 401(k) with my old employer?
Often, yes. Many plans allow former employees to keep their accounts, although it’s important to review the plan’s fees, investment options, and how it fits into your long-term strategy.
What happens if I cash out my 401(k)?
If you’re under age 59½, you’ll generally owe ordinary income taxes and may also owe a 10% early withdrawal penalty. You will also lose the future tax-deferred growth those retirement dollars could have earned.
If you currently have a 401(k), the Mitlin Team may be able to help you manage it. Please feel free to inquire for more information
Footnotes
“As of July 2025, there are 31.9 million “forgotten” 401k accounts in the U.S., holding roughly $2.1 trillion in assets.” https://www.investmentnews.com/retirement-planning/forgotten-401ks-hit-record-21t-as-job-insecurity-leaves-retirement-savings-stranded/262357
“One study found that individuals could lose up to $90,000 in retirement savings just by letting their old accounts sit idle.” https://www.plansponsor.com/left-behind-401ks-could-cost-americans-90000-by-retirement-per-pensionbee
“Around 2.8 million 401k accounts are abandoned or forgotten each year, with an average account size of about $55,400.” https://www.bdo.com/insights/assurance/abandoned-401%28k%29-accounts-and-the-great-resignation
“In 2020, about $595 billion was rolled over from employer plans into traditional IRAs.” https://www.morningstar.com/retirement/rolling-over-your-401k-take-these-4-key-steps-avoid-costly-tax-mistakes
