Changing jobs can bring plenty of decisions. One that is easy to overlook is what to do with the money you accumulated in your former employer’s retirement plan.

A rollover simply means moving eligible retirement assets from one retirement account to another while following applicable tax rules. Done properly, a rollover can allow retirement savings to maintain their tax-advantaged status rather than being treated as a current taxable distribution.

If you participated in a 401(k), 403(b) or another eligible workplace retirement plan, leaving the company generally does not mean you have to withdraw the money. Depending on your plan and circumstances, you may be able to leave the assets where they are, move them into a new employer’s retirement plan, roll them into an Individual Retirement Account (IRA) or take a distribution.

Why Might Someone Consider a Rollover?

One potential reason is consolidation. Over the course of a career, it is common to accumulate retirement accounts from several employers. Eventually, you may have a 401(k) from one company, another account from a later employer, and perhaps an IRA you opened independently.

Rolling eligible former-employer accounts into a single IRA, or, when permitted, into a current employer’s plan, may make it easier to see your retirement assets together. Fewer accounts can also mean fewer statements, passwords, and investment allocations to monitor.

Consolidation does not necessarily mean better investment performance, however. Before moving assets, it is important to compare the costs, investment options, services, and features of the existing plan with those of the account receiving the rollover.

Could a Rollover Provide More Investment Choices?

Potentially. Employer-sponsored retirement plans generally offer a menu of investments selected for the plan. An IRA may provide access to a broader range of investments, depending on the financial institution and type of account.

That additional flexibility can be useful for someone who wants to build a retirement portfolio around his or her individual goals, time horizon and tolerance for risk. However, a larger investment menu is not automatically an advantage. Some employer plans offer investments with attractive pricing or other features that may not be available in an IRA.

Fees matter as well. FINRA advises investors to compare retirement-plan and IRA costs because fees and expenses can affect the value of retirement assets over time.

Can You Roll Over Retirement Funds Without Paying Taxes Immediately?

In many cases, eligible pre-tax retirement assets can be moved directly from one qualified retirement account to another without creating a current federal income tax liability. This is generally accomplished through a direct rollover, in which the funds move from the former plan to the receiving retirement account rather than being paid to you.

That distinction is important. 

If an eligible taxable distribution from an employer retirement plan is paid directly to you, the plan generally must withhold 20% for federal income taxes. You typically have 60 days to complete an eligible rollover, and additional funds may be required to replace the amount withheld if you want to roll over the full eligible distribution.

Different rules can apply when moving pre-tax retirement assets into a Roth account, which may create current taxable income. Because tax consequences depend on the type of accounts involved and individual circumstances, consulting an appropriate tax professional may be advisable before completing a rollover.

Is Rolling Over an Old Retirement Account Always the Right Choice?

No. 

There is no single answer that applies to everyone. Leaving assets in a former employer’s plan may be appropriate in some situations. In others, moving them to a new employer’s plan or an IRA may better fit the individual’s needs. Investment choices, fees and expenses, services, distribution rules and other account features can differ substantially. Special circumstances involving employer stock or other plan-specific benefits may also deserve additional consideration.

The SEC identifies leaving assets in a former employer’s plan, transferring them to a new employer’s eligible plan, rolling them into an IRA, and taking a distribution as potential choices when leaving a job.

What Should You Do with an Old 401(k)?

Start by knowing what you have. If you have retirement accounts from previous employers, review their balances, investment choices, fees, and account provisions. Then compare those features with the alternatives available to you.

Mirus Financial Partners can help you review your retirement accounts and discuss how the available options may fit within your broader retirement strategy, investment objectives, and financial circumstances. A rollover is not automatically the right answer, but understanding your choices can help you make a more informed decision about money you worked years to accumulate.

This material is provided for general educational and informational purposes only and is not intended to provide individualized investment, tax or legal advice. Investment involves risk, including the possible loss of principal. Individuals should consider their personal circumstances and consult appropriate financial, tax, and legal professionals before making retirement-account decisions.