Broker Check

What do I do with my old 401k and 403b?

June 01, 2018

Changing jobs is a much more frequent occurrence than it used to be. Eventually people even retire (at least that is what I hear). When either of these events occurs, it is too many times the case that a person might not know exactly what to do with their former employer plans (we are dealing with 401k’s here, but most of this also applies to 403b’s). Many times we are seeing many plans held in many places, and I am very happy when we can clarify the choices and together find a tax-efficient course for a client. Here are the four basic choices, and some of the pros and cons of each.


Usually, this is the least desirable option. If you cash out a retirement plan then you typically have a taxable event. In addition, you may also have a 10% penalty on the amount cashed out.

The employer is required to withhold 20% for the federal government if you cash out. On the other hand, if the money is needed to sustain you while you look for another job and you have no other source of income, then it may be your only option. In the latter case, it may be a better choice to rollover this 401k to an IRA and then take monthly distributions until you find a job.


Of course, you many times can leave the account where it is. On the positive side, you have no tax implications as you would have had you cashed out. Also, 401k’s are many times considered as more protected from creditors. However, you also now will have another place that you will need to contact for information on your own money; and you will be limited to whatever the former employer chooses to include as an investment choice in their plan. If the company is sold to another owner, you will have to follow the bouncing ball to make sure that you know who is sitting on your retirement money.


If you are now at a new employer, and that employer allows you to rollover the old plan balance into the new employer plan, then this is also an option. For someone who is 70 ½ or over and still working, this would allow them to avoid having to take their annual required distributions. Of course, for anyone this allows you to further defer paying your taxes on the retirement account. One possible negative is that you are now limited to what the new employer plan allows for investments; and like the ‘do nothing’ option above, the new employer could be acquired and you might once again be looking to move your plan.


This option has several benefits such as more investment choices, independence from an employer plan, the ability to roll several types of retirement plans into it at any time for simplicity and consolidation, and continued tax deferral. On the negative side, IRAs are not protected from creditors generally; and if funds are taken out prior to age 59 ½ there could be a 10% penalty applied.

We have helped with these situations many times, and the only thing that is the same is that your situation is unique to you. Therefore, call us if you would like to explore this.

Please let us know if we may be of assistance.

by Ronald Donato, Jr., CFP®, MBA
Director of Financial Services