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Now That I’ve Left My Employer, What Should I Do with My 401(k)?

Nate Chisholm – Senior RETIREMENT CounseloR & Garrett Duchesne, CFP — Financial Advisor
July 2025

Whether it’s a life change, a new job, or retirement, many people move on from a previous employer and often leave their old retirement account behind. While leaving the account where it is can be a viable option, it’s worth asking: is it truly the best choice for your long-term goals, or simply the path of least resistance?

When it comes to old employer-sponsored retirement plans, there are several options available. Understanding the pros and cons of each is essential to making an informed decision that aligns with your financial future.

You might be asking: what are my options?

1. Keep It In Your Former Employer’s Plan

For individuals who don’t need immediate access to their retirement funds, keeping assets in an employer-sponsored plan can be a smart choice. These plans often come with lower-cost investment options due to institutional pricing, along with the added benefit of strong creditor protection under ERISA, making them a potentially valuable option for long-term investors.

Important considerations to keep in mind:

  • Limited withdrawal flexibility: Distribution provisions will be spelled out on the plan document, but they are generally more restrictive compared to IRAs.
  • No new contributions allowed: Contributions into 401(k) plans can only be made through payroll deferrals, so when you sever ties with the organization, you generally lose this option.
  • Required Minimum Distributions (RMDs): You’ll be required to begin taking distributions at age 73 or age 75 if you were born in 1960 or later.

2. Roll Over to an Individual Retirement Account (IRA)

With a typical 401(k) plan, your investment choices are limited to a pre-selected list of options chosen by the plan sponsor. If you’re seeking greater flexibility, you may consider rolling the account over to an IRA. This strategy preserves the tax-deferred growth (tax-free with a Roth) of your retirement savings while giving you access to a broader range of investments, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs). This expanded flexibility can be especially useful for implementing investment strategies tailored to your specific goals.

Important considerations to keep in mind:

  • Potentially higher fees: Investment costs outside of employer-sponsored retirement plans are often higher, due to transaction fees and the use of retail-priced investments rather than lower-cost institutional options.
  • Less creditor protection than a 401(k): 401(k)s are governed by The Employee Retirement Income Security Act of 1974 (ERISA), which provides some protection for employer-sponsored retirement plans. While IRAs do provide some creditor protection, it’s generally more limited and varies by state.
  • Required Minimum Distributions (RMDs): Still apply unless it’s a Roth IRA.

3. Roll Over to a New Employer’s Plan

If you’ve started a new job and your new employer offers a 401(k) plan, rolling your old account into the new one can be a smart move. Consolidating your retirement savings in one place can make it easier to manage, monitor, and keep aligned with your long-term financial goals, all while continuing to benefit from the features of a 401(k), such as institutional pricing and creditor protection.

Important considerations to keep in mind:

  • Investment options: Your new employer’s plan may offer a different lineup of investments, which could be more limited than your previous plan or an IRA.
  • Must be allowed: Not all 401(k) plans accept rollovers. Be sure to confirm with your new plan administrator that incoming rollovers are allowed.
  • Plan fees: 401(k) plans can vary significantly in terms of administrative and investment fees. It’s important to review and compare the cost structure before consolidating.

4. ‘Cash Out’ your Account

Cashing out your retirement account is usually not the best option, as the full amount will be subject to immediate income taxes. Additionally, most plans are required to withhold a portion of the distribution upfront. If you’re under the age 59½, you may also face early withdrawal penalties. This option generally makes sense only in true emergencies. Even then, many plans offer hardship withdrawal provisions that can help you avoid penalties while addressing urgent financial needs.

Important considerations to keep in mind:

  • Taxes and penalties: If your withdrawal does not qualify under hardship provisions and you’re under 59½, you may face a 10% penalty in addition to regular income taxes.
  • Loss of tax-deferred growth: Cashing out means you’ll forfeit the advantage of continued tax-deferred growth on those funds.
  • Potential setback for retirement: Withdrawing funds now could significantly delay your retirement goals.

Final Thoughts

It can be challenging to quickly absorb all this information and determine which option is best for your unique situation. Often, it takes a deeper understanding of your current circumstances and long-term goals to find the solution that truly fits. At Lebel & Harriman, we’re committed to helping you and your employees understand your options, so you can make confident, informed decisions about your financial future.

Please note: 401(k) distribution options can vary significantly from plan to plan. When reviewing your choices, be sure to pay close attention to details such as withdrawal methods, types of withdrawals allowed, plan-specific rules, administrative requirements, and required minimum distributions (RMDs).

Direct rollover tip: Consider a direct rollover to avoid any mandatory tax withholding, 60-day deadline to redeposit funds, and/or potential early withdrawal penalties.

For more information: Contact Garrett Duchesne, CFP®, AWMA® at (207) 800‑9596 or Nate Chisholm  at (207) 800‑9568 or gduchesne@lebelharriman.com | nchisholm@lebelharriman.com.

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This material is for informational purposes only and is not intended provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation, or needs of individual investors.

Securities Disclosure: Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. | 130 Springside Drive, Suite 300, Akron, OH 44333–2431 | Telephone: (800) 765‑5201 | Lebel & Harriman, LLP and Lebel & Harriman Retirement Advisors are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.

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