What should I do with my 401(k) now that I quit my job?

Treyton DeVore
May 15, 2022

First, congrats 🎉

Second, you have a few options:


Option #1 - Leave it where it is

If you're leaving your job and you have more than $5,000 in the 401(k), you can leave it where it is and the account will stay invested and continue to grow.

These are a few scenarios of what may happen with your existing account depending on the balance:

  • If you have less an $1,000, your old employer will most likely sell your investments and send you a check for the dollar amount
  • If you have between $1-5,000 and they won't let you leave it, they must help set up an IRA to transfer the funds to
  • If you have more than $5,000 invested in your 401(k), most plans allow you to leave the existing account at your old employer

But overall, if you're leaving your job and your 401(k) is invested in good, low-cost funds, it's generally okay to leave it.


Option #2 - Roll it over

However, if the 401(k) is invested in high-cost funds or you're not a fan of the limited investment options, it may make sense to roll it over to a Solo 401(k) - which you would need to set up after becoming self-employed - or into an IRA.

An important note: If rolling over your old 401(k), you have 60 days from the time the old plan releases your funds for them to be deposited into the new 401(k) or IRA. If not completed within 60 days, you may get hit with fees and/or penalties.

When transferring and rolling over funds, be sure to frequently check in on the status to ensure that deadlines are being met and the funds are being transferred correctly.​

Also read: How to Roll Over a 401(k)


Option #3) Cash out and reinvest

If you don't want to invest the money for retirement, the least prudent option is to simply cash out and keep the money.

I'll admit, this is what I did when I left my last job 🤷🏻‍♂️

But rather than keep the money and spend it on unnecessary things, I kept the money and reinvested back into my business.

I didn't want to put the money into an account I couldn't touch for 40 years, so I used the little bit I did have to put towards building Piertree. For entrepreneurial-minded people, I'll be the first to tell you that investing in your business can be the best investment you make throughout your life.

It can provide higher returns than a retirement account, but it also comes with much more risk.

However, if you're leaving your job to start a business, just know that you can use funds from your existing 401(k) but you'll most likely have to pay income tax on the funds as well as a 10% penalty.

So in summary, when you're leaving a job and have an existing 401(k) you can either:

  • Leave it at your old employer
  • Roll it over
  • Cash out and use money as desired (with a 10% penalty and taxes due)


Disclaimer: This should should be viewed as "education-only" and for legal purposes, this should not be considered investment, tax, or legal advice.

Get the book for free
A 67-page, easy-to-understand breakdown of what you need to know about managing money as a freelancer or solo creative

Related Posts