San Dimas Office

413 East Foothill Boulevard, Suite 100,

San Dimas, CA 91773

401(k) Rollovers


A rollover means that funds from a retirement account are transferred into a Traditional or Roth individual retirement account. The definition is basic, but there are various ways this transfer can be handled.

What’s the difference between an IRA and a 401(k) plan?

Both are accounts that hold investments dedicated to providing fund for you to use in retirement. Typically, you have a wider array of investment options to choose from in an IRA than in most employer 401(k) plans.

You’re changing jobs. . . what should you do with your 401(k)?

Many questions arise when you leave a job and must decide what to do with your retirement account. The answers to those questions are determined by your individual situation including your age and your goals, the specific details of the plan, and what you feel is your best choice.

Which option is best for you? That depends. A discussion with your financial advisor can help you understand how the various options would affect you and your future. An overview of the options can help provide a framework for your decision process.

When you leave an employer, typically you’ll have a choice of four options for handling the funds that have accumulated in your retirement account.

  • Roll the funds into an IRA
  • Move the funds into the 401(k) plan with your new employer, providing a plan is available
  • Leave your plan where it is, at the old employer
  • Cash out your 401(k)

Let’s take a closer look at each option and consider why it’s important to pay attention to this aspect of your employee benefits.

401(k) Rollover to an IRA

You have a start on planning for retirement. The funds accumulated in a retirement account are tax deferred and are an important component of your total financial plan.  An IRA is often used to hold assets from a 401(k), 403(b), or retirement account from a former employer. Rolling them into an IRA maintains this tax deferred status.

Move the funds to the new employer’s 401(k) plan

This could be a possibility. Your decision will need to be based on your age, work plans, and the quality of the investment options available to you in the new plan. Not every employer’s 401(k) offers the same number or type of investment options. You’ll want to consider how well the new plan investment choices meet your goals.

Keep your old 401(k) plan where it is

This may be an option, depending on the amount in your account and conditions set by your former employer. Keep in mind that you will not be able to add to the plan and will not be receiving any further employer matches. Also, depending on how often you’ve changed jobs, keeping track of old accounts may be more complicated than consolidating them into one account. In some situations, particularly if you hold stock in your previous company in your 401(k), it could make sense not to move this portion of the account.

Cash out your 401(k) and take the money

Of all the options, this is potentially the most costly and often the least advisable. Taxes and early withdrawal penalties will typically reduce the amount you receive. In addition, if you choose to take the cash you will lose the opportunity for the fund to grow in value throughout the remainder of your working years.

Rollovers offer potential for you to gain greater control over your assets and investments, yet the process is regulated by some highly details rules. You need a clear understanding of the benefits and risks of each option as it relates to your individual financial picture. If you’re ready to learn more, we’re here to help.