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Retirement, Investments, & Insurance for Individuals Build your knowledge 4
things you can do with 401(k) savings when leaving your job or nearing
retirement
4 things you can do with 401(k) savings when leaving your job or nearing
retirement

Don’t forget about that 401(k) you had with your previous employer. Here are
four options for what to do with it, from keeping it where it is to rolling it
into an IRA.


3 min read | January 13, 2023
 

If you’ve been part of the surge in job turnover in recent years, you may find
yourself with a 401(k) tied to a former employer.

Why? That retirement savings plan was “employer-sponsored,” meaning your
employer offered it as a workplace benefit (and maybe even contributed to it)
and your contributions came out of your paycheck. Now that you’ve parted ways,
the savings are yours,1 but you can no longer add money to the account because
it remains tied to your former employer.

Fortunately, you have a few options for that 401(k) when you change jobs or
approach retirement.

Let’s cover the basics of each option.

From tax implications to investment opportunities, each option for your 401(k)
has nuances to consider. Get details on each choice (PDF).


1. ROLL YOUR SAVINGS INTO AN IRA.

Transfer your money into an individual retirement account (IRA).

 * Your savings can continue to be invested, with similar tax advantages.
   (Rolling a traditional 401(k) into a traditional IRA delays taxation. You
   also have the option to roll it into a Roth IRA and pay taxes immediately.
   This may be beneficial if you have less than $6,500 in the account—the annual
   limit for a Roth IRA—and expect that your tax bracket in retirement will be
   higher than your current rate.)
 * You may have access to a wider range of investment options than what is
   usually available in 401(k) plans, including options for ongoing money
   management.
 * You can consolidate all of your retirement savings in one place by rolling in
   any savings from past employers.
 * You can keep contributing money to the account up to annual limits. Learn
   more about annual contribution limits.
 * Loans aren’t allowed, but you may be able to withdraw money before age 59½
   under certain circumstances.2

You can personalize an IRA as much or as little as you’d like.

With an IRA, you’re in control of your retirement savings. Principal offers
IRAs—both traditional and Roth—that have a variety of investment options and can
be self-directed or managed for you.


2. KEEP YOUR MONEY WHERE IT IS.

Do nothing. If you meet the minimum balance—$5,000 through 2023 and $7,000
starting in 2024—you can leave your savings invested in your former employer’s
retirement plan, if available.

 * Your savings stay invested, with the same tax advantages.
 * You continue with the plan’s investment options and any changes to the
   investment lineup that they may make.
 * You can’t make additional contributions.
 * Your past employer may decide to make changes to the plan that impact your
   account by offering more or fewer services for you.
 * If you have an outstanding loan in your employer’s retirement plan, in most
   circumstances you’ll be required to pay it back within a short time following
   your separation from service. You won’t be able to take a loan from your
   savings if you’re no longer employed with the company.2


3. MOVE YOUR MONEY TO YOUR NEW EMPLOYER’S PLAN.

If you have a new employer offering a retirement plan, you may be able to
transfer your previous savings into it. Contact your HR department for help
getting started.

 * Your savings stay invested with the same tax advantages.
 * You might be able to roll in savings from other retirement plans.
 * You can keep contributing money from your new paycheck to your new plan.
 * The investment options will depend on what the new plan offers.
 * You may be able to take out a plan loan or withdraw money before retirement
   under certain circumstances.2


4. CASH OUT YOUR ACCOUNT BALANCE.

You also have the option to take your savings as a lump-sum cash distribution.

 * You get immediate access to your money, but you may lose up to 30% of it to
   taxes and penalties.
 * You’ll miss out on any future growth or earnings.
 * The receipt of this money is considered income and may move you to a higher
   tax bracket, which means you might have to pay more in taxes.

 

For many Americans, employer-sponsored retirement savings make up the largest
sum of money they have. And making an informed decision is in your long-term
best interest. Here’s a quiz to help. But also know that you don’t have to go it
alone—we're here to help at each step along the way.

 

Once you’ve made a decision about your 401(k), check off the rest of your
financial to-dos after leaving a job.


WHAT’S NEXT?

Log in to your account to consolidate accounts or initiate a rollover to an IRA
with Principal. Don’t have one? We can help you get started with a rollover IRA.

Retirement planning
Workplace benefits
Nearing retirement


--------------------------------------------------------------------------------

1Did your 401(k) have a vesting schedule? Check before you withdraw any funds.
Employees may not be able to keep employer matches and employer contributions
that had not vested at the time of their termination or resignation.

2While loans are not allowed, you may be able to access money from a traditional
IRA or 401(k) by taking a taxable distribution, although penalties will apply if
you’re under age 59½. IRS penalty-free withdrawals may become available at age
59½. Some exemptions apply, such as expenses for certain medical care and
first-time homebuyers; review IRS exceptions to taxes on early distributions for
details.

Investment and Insurance Products are:

 * Not insured by the Federal Deposit Insurance Corporation (FDIC) or Any
   Federal Government Agency.
 * Not a Deposit, Obligation of, or Guaranteed by any Bank or Banking Affiliate.
 * May Lose Value, Including Possible Loss of the Principal Amount Invested.

The subject matter in this communication is educational only and provided with
the understanding that Principal® is not rendering legal, accounting,
investment, or tax advice. You should consult with appropriate counsel or other
advisors on all matters pertaining to legal, tax, investment, or accounting
obligations and requirements.

Financial professionals are sales representatives for the members of Principal
Financial Group®. They do not represent, offer, or compare products and services
of other financial services organizations.

Insurance products and plan administrative services provided through Principal
Life Insurance Company®. Securities offered through Principal Securities, Inc.,
member SIPC and/or independent broker/dealers. Referenced companies are members
of the Principal Financial Group®, Des Moines, IA 50392.

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