Tips & Tricks

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5 min read 4 stepsMay 9, 2026Verified May 2026

Rolling Over Your 401(k) or Staying With the Employer Plan: Pros and Cons

After you retire, you can move your 401(k) to an IRA, keep it where it is, or cash it out. Here is what each choice really costs and saves.

At a Glance

Pull the fee disclosure from your current 401(k)

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Log into your 401(k) account or call the plan administrator and ask for the most recent Annual Fee Disclosure (often labeled Form 404(a)(5)). It shows the expense ratio of every fund you own and any administrative fee. Add them up. If your total fees are below 0.50 percent and you are happy with the funds, leaving the money in place may be the best move. If fees are above 1 percent, an IRA rollover almost always saves money.

Open the IRA before you start the rollover

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Pick a brokerage (Fidelity, Vanguard, Schwab, T. Rowe Price are the most common for retirees) and open a Rollover IRA online. The application takes about 20 minutes. You will need your social security number, an existing bank account, and a beneficiary name. Do not close your 401(k) until the IRA is open and ready to receive the funds — otherwise the money may sit in limbo.

Quick Tip

Quick Tip: Call the receiving brokerage before you start. Most have a free rollover concierge team that contacts your old 401(k) provider, fills out the forms, and handles the whole transfer for you at no cost.

Always pick direct rollover, not indirect

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On the rollover form there are two boxes: direct rollover and indirect rollover. Direct rollover means the check is made out to the new IRA custodian and mailed straight to them (or sent electronically). Indirect means the check is mailed to you, you deposit it. And you redeposit into the IRA within 60 days. Indirect rollovers cause more tax problems than almost any other retirement mistake. The IRS withholds 20 percent for taxes on indirect rollovers, and many retirees forget to make that up.

Warning

If a financial advisor pressures you to do an indirect rollover or to roll into a high-commission product like an annuity, get a second opinion. Some advisors earn a one-time commission of 5 to 7 percent on an annuity rollover — that is your money paying for their sale.

Update the beneficiary on the new IRA the same day

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When you open a Rollover IRA, the brokerage asks for a primary beneficiary and contingent beneficiary. Fill these in right away. An IRA passes to beneficiaries outside of probate, which saves your family weeks or months of court delay. Most retirees name their spouse as primary and their children as contingent. If you change your mind later, the beneficiary form is updated online in 5 minutes.

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When you leave your job for retirement, your 401(k) does not have to go with you. The money belongs to you, but the account stays at your old employer until you make a choice. You have three real options: roll it into an IRA, keep it in the old 401(k), or take a lump sum cash distribution. The third option triggers immediate taxes and an early-withdrawal penalty if you are under 59 and a half, so very few retirees should pick it.

The rollover-to-IRA path is the most common. You move the balance from the 401(k) into an Individual Retirement Account at a brokerage like Fidelity, Vanguard, Schwab, or T. Rowe Price. The big advantages are wider investment choices, lower fees in many cases, and the ability to combine multiple old accounts in one place. The disadvantages are losing some employer-plan protections and giving up access to certain low-cost institutional funds you may have had in the 401(k).

Keeping the money in the old 401(k) is allowed at almost every employer if the balance is over $5,000. The main reason to do this is when the 401(k) has unusually low fees or excellent funds you cannot find elsewhere. Some federal Thrift Savings Plan and large-employer 401(k) accounts charge fund fees below 0.05 percent, which is hard to beat in any IRA.

There is also a halfway path called direct rollover, where the money moves trustee to trustee without ever being mailed to you. This is the safest version because the IRS counts an indirect rollover (where you get a check) as a taxable event if you do not redeposit within 60 days. Always pick direct.

Taxes matter at every step. A traditional 401(k) rolled to a traditional IRA stays tax-deferred and triggers no taxes today. A traditional 401(k) rolled to a Roth IRA is a Roth conversion and triggers full income tax on the converted amount. Many retirees do small Roth conversions over several years in the low-income window between retirement and the start of Required Minimum Distributions at age 73.

(Sources: IRS — Rollover Chart; Department of Labor — Your 401(k) After Leaving Your Job; FINRA — IRA Rollovers)

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