401(k) rollover options

Changing jobs or retiring? Consider all your 401(k) rollover options.

It's important to understand your retirement plan options when you leave your employer. If you've retired or changed jobs, you may have questions about whether to roll over your employer's 401(k) retirement plan.

You typically have four options for your old 401(k):

  • Option 1: Roll over the money to an Edward Jones Traditional or Roth IRA  (Roll it)
  • Option 2: Leave the money in your former employer’s 401(k) plan (Leave it)
  • Option 3: Move the money to your new employer’s 401(k) plan (Move it)
  • Option 4: Cash out the 401(k) account, which is subject to tax consequences (Take it)

Option 1: Roll over your 401(k) to an Edward Jones Traditional or Roth IRA (Roll it)

Rolling your 401(k) into an IRA is an option that offers several benefits:

  • Ability to add money: You should be able to add money to your IRA as long as you meet certain income requirements. This allows you to consolidate your retirement savings and other accounts, which may make it easier to monitor your investments and simplify your account information at tax time.
  • Investment choices: Traditional and Roth IRAs typically have a broader range of investment options than employer plans, but you may not have access to the same investments that are in your current plan.
  • Available services: An Edward Jones financial advisor can review your 401(k) rollover options and tailor an investment strategy based on your personal needs and goals.
  • Fees and expenses: Edward Jones IRA fees generally include an annual account fee, investment-related expenses and termination fees. For more information, see IRA Schedule of Fees or Fees and Pricing.
  • Penalty-free distributions: Generally, you can withdraw money from an IRA without tax penalties at age 59½.
  • Required minimum distributions: Generally, you must take minimum distributions from a traditional IRA beginning at age 72.

Option 2: Leaving money in your former employer's 401(k) plan (Leave it)

Leaving money in your current 401(k) may be an option, depending on the terms of your plan. Many additional factors, such as the option to add money and make certain investment choices, will also depend on the terms of your plan. Here's what you should know:

  • Ability to add money: Once you leave your employer, you generally won't be able to add money to your plan.
  • Investment choices: 401(k) plans typically have a more limited number of investment options compared to an IRA, but they may include investments you can't get through an IRA.
  • Available services: Some plans may offer educational materials, planning tools, telephone help lines and workshops. Your plan may or may not provide access to a financial advisor.
  • Fees and expenses: 401(k) fees and expenses often include administrative fees, investment-related expenses and distribution fees. These fees and expenses may be lower than the fees and expenses of an IRA.
  • Penalty-free distributions: Generally, you can take money from your plan without tax penalties at age 55, if you leave your employer in the calendar year you turn 55 or older.
  • Required minimum distributions: Generally, you must take minimum distributions from your former employer's plan beginning at age 72.

Contact your plan administrator to learn more about fees and the terms of your plan. Your Participant Fee Disclosure and/or Summary Plan Description should have this information.

Option 3: Move the money to your new employer's 401(k) plan (Move it)

Moving money to your new employer’s 401(k) may be an option, depending on whether your current employer has a 401(k) plan and the terms of the plan. Like your former employer's plan, many factors ultimately depend on the terms of your plan, but you should keep the following mind:

  • Ability to add money: You'll generally be able to add money to your new employer's plan as long as you meet the plan's requirements. This option also allows you to consolidate your retirement accounts, which may make it easier to monitor your investments and simplify your account information at tax time.
  • Investment choices: 401(k) plans typically have a more limited number of investment options compared to an IRA, but they may include investments you can't get through an IRA.
  • Available services: Some plans may offer educational materials, planning tools, telephone help lines and workshops. Your plan may or may not provide access to a financial advisor.
  • Fees and expenses: 401(k) fees and expenses often include administrative fees, investment-related expenses and distribution fees. These fees and expenses may be lower than the fees and expenses of an IRA.
  • Penalty-free distributions: Generally, you can take money from your plan without tax penalties at age 55, if you leave your employer in the calendar year you turn 55 or older.
  • Required minimum distributions: Generally, you must take minimum distributions from your plan beginning at age 72, unless you are still working at the company.

Contact your plan administrator to learn more about fees and the terms of your plan. Your Participant Fee Disclosure and/or Summary Plan Description should have this information.

    Option 4: Cashing out your 401(k) (Take it)

    While withdrawing your money is an option, in most circumstances, it means those funds will not be there when you need them in retirement. In addition, cashing out your 401(k) generally means you'll have to pay taxes on the withdrawal, and there's typically an additional 10% tax penalty if you're younger than 59½, unless you left your employer in the calendar year you turned 55 or older.

    Net unrealized appreciation: special considerations for employer stock
    If you own stock in your former employer and that stock has increased in value from your original investment, you may be able to receive special tax treatment on these securities. This is referred to as net unrealized appreciation (NUA). If you roll the employer stock into a traditional or Roth IRA or move it to your new employer’s plan, the ability to use the NUA strategy is lost. NUA rules are complex. If you're considering NUA, we suggest consulting with a tax professional prior to making any decisions on distributions from your existing plan.

    Should I roll over my 401(k)?
    The decision about whether to roll over your 401(k) is dependent on your individual situation. A financial advisor will work with you to help identify your goals and determine what's important to you. By understanding your investment personality, he or she will be able to advise if rolling over your 401(k) is the best option for you.

    What are the benefits for rolling over a 401(k)
    Rolling over a 401(k) to an IRA can help provide a consolidated view of all your retirement accounts. This holistic view can help you and your financial advisor make sure your investments are aligned to your risk tolerance and financial goals.

    How we can help

    If you have a 401(k) and are exploring rollover options, we invite you to meet with one of our financial advisors to discuss your situation. He or she will take the time to explain the available options and answer any  questions.Together you can determine what's best for you.

    Important information:

    Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. This content should not be depended upon for other than broadly informational purposes. Specific questions should be referred to a qualified tax professional.