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Retirement
You have four real options and one expensive fake one. The right answer depends on fees, vesting, the rule of 55, and whether a traditional IRA would wreck a future backdoor Roth.
Updated 2026-09-08 · 11 min read · Educational, not advice
Keep
Allowed above the plan’s force-out threshold. Keeps rule of 55 and ERISA protection.
New job
One workplace plan, often cheaper funds, and it does not count as an IRA for pro-rata.
IRA
More fund choice, easier Roth conversions later — but it can block a backdoor Roth.
Roth
Taxable this year. Useful in a low-income gap year, painful in a high-bracket year.
The fifth door is cashing out. That is a distribution: ordinary income, usually 10% extra if you are under 59½, and you lose every year of compounding. Treat it as a last resort for a true emergency after the emergency fund is gone — not as a signing bonus to yourself.
Ask the old plan for a direct (trustee-to-trustee) rollover. The check is payable to the new custodian, not to you. Pre-tax money goes to a traditional 401(k) or traditional IRA. Roth 401(k) money goes to a Roth 401(k) or Roth IRA. After-tax basis can usually split: basis to Roth, earnings to traditional — confirm with the plan before you request the form.
An indirect rollover is a check payable to you. The plan must withhold 20% for federal tax. You have 60 days to deposit the gross amount, which means replacing the withheld 20% from other cash. If you only deposit the net 80%, the missing 20% is a taxable distribution. Direct rollovers skip that circus.
Your deferrals are always yours. The employer match and profit-sharing often vest on a cliff or a graded schedule. The statement’s headline balance is not the vested balance. Unvested money stays with the old employer when you leave. Run the calculator with vested dollars, not the brochure number.
If you are weeks from a vesting cliff and you have any control over the last day, that cliff is real money. HR will not volunteer it.
Old plans with 1%+ target-date funds, limited menus, high admin fees, or a force-out (often $1,000 cash-out or $7,000 automatic IRA) are not sentimental objects. Roll them.
A new employer 401(k) is the clean default if it accepts incoming rollovers and the funds are fine: one login, one beneficiary form, and no traditional IRA sitting around to trigger the pro-rata rule on a backdoor Roth.
A traditional IRA wins when you want a brokerage menu, easier Roth conversions in a gap year, or the new plan does not accept roll-ins. Just know you are trading flexibility for a future backdoor-Roth headache if you still earn over the Roth IRA income limit.
Moving pre-tax 401(k) money to a Roth IRA or Roth 401(k) is a conversion. You owe ordinary income on the converted amount in the year it posts. That can be smart in a sabbatical, a layoff year, or before IRMAA lookback years. It is usually expensive in a high-W-2 year. Pay the tax from cash outside the account if you can — using the converted dollars to pay the IRS shrinks the Roth.
See also: Roth conversion basics and IRMAA cliffs.
An unpaid 401(k) loan typically becomes a taxable distribution when you leave. It cannot be rolled. If the balance is large, ask payroll whether you can repay it before the deadline (often the tax-filing due date including extensions).
Next January you will get Form 1099-R. Direct rollovers usually show code G and are not taxable. Indirect rollovers, conversions, and cash-outs look different. Keep the statement that shows pre-tax vs Roth vs after-tax basis — you will need it for Form 8606 if after-tax money moved.
Run the numbers
Fee drag, vesting, conversion tax, and the 10% penalty on one page. Share the URL when the bars look right.
Often yes, but not always. Keep it if you need the rule of 55, NUA, or a uniquely cheap fund. Roll it if the old plan is expensive or will force you out. Do not cash out.
A trustee-to-trustee transfer. The old plan sends the money straight to the new custodian. No 20% withholding, not a taxable event if like-to-like.
A check payable to you withholds 20%. You must deposit the full gross within 60 days or the withheld slice is a taxable distribution — plus 10% if you are under 59½.
Yes. Pro-rata looks at every traditional IRA. Prefer a new 401(k) if you still need the backdoor.
Most plans accelerate it. Unpaid balance = taxable distribution, not rollover-eligible.
Not financial, tax, or legal advice. Confirm plan documents, IRS Pub 575 / 590-A, and a licensed professional before you request a distribution.