A lot can happen when you quit your job, but it’s important to plan for your existing 401(k).
IRS increases 401(k) contribution limits for 2026
The IRS will increase 401(k) and catch-up contribution limits for 2026, allowing workers to save up to $32,500 for retirement.
If you want to change jobs, work for a good company. The average American worker changes employers approximately once every four years.
The last thing you might be thinking about when making the switch is what to do with your 401(k). However, it is important to make decisions that will benefit you in the long run.
Option 1: Leave it alone
In rare cases, you may find an employer who wants their former employees to have a 401(k). However, it is not the norm. Most employers will be happy to let you leave your money in the plan indefinitely. Keeping your account intact has the following benefits:
- It’s simple: No action is required.
- Creditor protection: If you’re considering transferring your 401(k) to another plan type, it’s important to remember that 401(k)s typically offer stronger creditor protection than other retirement accounts.
Option 2: Roll over to your new employer’s 401(k)
Not all employers will accept rollovers from a previous employer’s plan, but most will. If your new employer does, a 401(k) rollover is a relatively simple process. There are two types of rollovers: direct rollovers and indirect rollovers. As the name suggests, a direct rollover moves funds directly from the old plan administrator to the new plan administrator.
In an indirect rollover, funds are transferred less the mandatory 20% withholding tax. Then, re-deposit the full amount into your new account within 60 days to avoid taxes and a possible 10% penalty. It’s rarely the best option.
The benefits of transferring your account to a new employer include:
- Integration: By transferring your account to your new employer, you can keep your retirement savings in one place.
- Simplified RMD: Retirement may be years away, but required minimum distributions (RMDs) will become due around age 75. Having just one retirement account for withdrawals simplifies the bookkeeping associated with RMDs.
Option 3: Roll over to an IRA
One advantage of moving funds into an IRA is that IRAs typically offer a wider range of investment options and often have lower fees. Again, a risk-free way to roll over your money is by direct transfer. That way, you don’t have to worry about missing the 60-day deadline to complete the rollover on your own.
Converting your 401(k) to an IRA also provides other benefits, including:
- Everything in one place. By consolidating all your retirement accounts into one IRA, you can easily track the status of your portfolio.
- Estate planning: IRAs offer great flexibility in naming beneficiaries. For example, you can name both a primary beneficiary and a contingent beneficiary, a charity or a trust. Equally appealing is the ability to easily change recipients at any time.
- Professional management: While your 401(k) may seem “hands-off,” you can get up close and personal with your IRA. It’s easy to work with a financial advisor who is part of a brokerage’s professional management team and communicate your preferences.
If you’re wondering what to do with your 401(k) funds, rest assured. You don’t have to decide this week or this year. There is no transition deadline set by the IRS. If your 401(k) is working well with your previous employer, give yourself time to make a decision you’re happy with.
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