A career change is an exciting step—new challenges, new opportunities, a fresh start. But while you’re planning what’s next, there’s one thing you shouldn’t ignore: your old 401(k). Making the right move with your savings today could mean more security (and more freedom) in the future.

You generally have four main choices:

1. Withdraw the money from your account
2. Leave it with your old employer
3. Roll it into an IRA
4. Roll it into your new employer’s 401(k) plan

Let’s break down what each of these options really means for your wallet, your retirement goals, and your future self.

Option 1: Cash Out (The Most Expensive Move)

Cashing out may sound tempting—who doesn’t like the idea of a lump sum of cash? But it’s almost always the costliest option.

Here’s why:

• Taxes: Withdrawals are taxed as ordinary income. Depending on your tax bracket, that could eat up a large chunk.
• Penalties: If you’re under 59½, you’ll likely pay a 10% early withdrawal penalty on top of the taxes.
• Lost growth: Perhaps the biggest downside—once you pull the money, it stops compounding for your future. That could cost you hundreds of thousands of dollars over time.

Unless it’s an absolute emergency, cashing out is a move you’ll want to avoid.

Option 2: Leave It With Your Old Employer

You can keep your account where it is, but there are trade-offs.

Pros:

• Your money stays invested and continues to grow.
• You don’t have to make an immediate decision.

Cons:

• You can’t make new contributions.
• Fees may still apply, even though you’re no longer an employee.
• Limited oversight—out of sight, out of mind.
• If your balance is small, the plan may automatically cash it out or move it into an IRA for you.

This option isn’t the worst, but it’s usually not the most efficient either.

Option 3: Roll It Into an IRA

Rolling over to an IRA gives you more flexibility and control. You’ll have three variations:

1. Traditional 401(k) → Traditional IRA
   • Keeps the tax treatment the same.
   • Direct rollovers avoid taxes and penalties.
2. Roth 401(k) → Roth IRA
   • Keeps your money in the “after-tax” bucket.
   • Qualified withdrawals after age 59½ (and 5 years in the account) are tax-free.
3. Traditional 401(k) → Roth IRA (Conversion)
   • You’ll pay taxes now on the converted amount, but future qualified withdrawals are tax-free.
   • This can make sense if you expect to be in a higher tax bracket later.

Pro tip: Always do a direct rollover (money goes straight from one account to another) instead of an indirect rollover (where the check comes to you first). Indirect rollovers can trigger taxes and penalties if not handled within 60 days.

Option 4: Roll It Into Your New Employer’s Plan

If your new company offers a good retirement plan, rolling your old 401(k) into it can simplify things. Having all your retirement savings in one place makes it easier to track.

Before you move your money, ask:

• What are the plan’s fees?
• What investment options are available?
• How quickly can the rollover happen?
• Does the plan offer matching contributions going forward?

This option is often a good choice if the new plan is low-cost and offers strong investment options.

Extra Things to Consider

• Required Minimum Distributions (RMDs): Starting at age 73 (under current law), you’ll need to take withdrawals from traditional IRAs and 401(k)s. Roth IRAs don’t have RMDs, which can make them an attractive rollover choice.
• Employer stock: If your 401(k) includes company stock, ask about Net Unrealized Appreciation (NUA) tax rules before rolling over—it could save you money.
• Avoid common mistakes: Don’t assume leaving it behind is “good enough,” and don’t forget that fees matter more than you think.

The Bottom Line

Changing jobs is a big step, and handling your old 401(k) wisely can make a huge difference in your retirement years. Think carefully before you decide, compare your options, and remember: what you do now can either set you up for long-term growth or cost you more than you realize.

At Navalign Wealth Partners, we help you evaluate your 401(k) rollover options and align them with your bigger financial goals. Let’s talk about the path that makes the most sense for your future.