When you leave a job, you have four options for your 401(k): leave it where it is, roll it to your new employer’s plan, roll it to an IRA, or cash it out. For most people with balances between $500,000 and $3 million, rolling to an IRA is the right answer — but not always. The wrong choice can cost you tens of thousands in taxes, unnecessary fees, or lost flexibility for the rest of your life.
I’m Nick Stevens, CFP®, founder of Evergreen Wealth Management, a flat-fee financial planning firm in Boston. I’ve walked clients through this decision hundreds of times, and the right choice almost always comes down to four variables most people never think about: fees, investment options, creditor protection, and whether you’re holding company stock.
What are the four options when you leave a job?
Here is the short version of each option and the typical use case:
| Option | Tax Impact | Best For |
|---|---|---|
| Leave it in old 401(k) | None — fully tax-deferred | Excellent plan, low fees, no urgency |
| Roll to new employer’s 401(k) | None — direct rollover | You want one account and the new plan is strong |
| Roll to a traditional IRA | None — direct rollover | You want investment flexibility and lower fees |
| Cash out | Full ordinary income tax plus 10% penalty if under 59½ | Almost never — only in true emergencies |
There is also a fifth option that gets ignored: a Roth conversion of the entire balance, or a portion of it, after rolling to an IRA. That deserves its own conversation, which I will get to below.
Should I leave my 401(k) with my old employer?
Sometimes, yes. If your old plan has low expense ratios — institutional share classes often run 0.02% to 0.10% — and decent fund choices, leaving it alone has real merit. You pay nothing in taxes, you keep federal ERISA protection from creditors, and you preserve the rule of 55, which lets you withdraw penalty-free if you separated from service in or after the year you turned 55.
The catch: many smaller plans charge 0.50% to 1.5% per year in record-keeping and fund expenses, and they limit you to 15 to 25 mutual funds, often without an index option that tracks the total stock market or a high-quality bond fund. If you do not know what your old plan costs, request the 404(a)(5) participant fee disclosure from HR or the plan provider. Every plan must give you one.
One additional reason to leave it: if you have highly appreciated employer stock in your 401(k), there is a tax strategy called Net Unrealized Appreciation (NUA) that only works if the stock comes out of the 401(k) directly, not after a rollover. More on that below.
Should I roll my 401(k) to my new employer’s plan?
Roll into the new plan only if it is clearly better than your old one and better than an IRA. Run through this short checklist:
- Investment menu: Does the new plan offer a low-cost total stock market index fund, a total international fund, and a quality bond fund? If yes, that is three quarters of what most portfolios need.
- Fees: What are the all-in costs — record-keeping plus average expense ratios? Under 0.30% is excellent. Over 0.80% is a problem.
- Roth feature: Does the plan accept rollovers of Roth 401(k) money and allow in-plan Roth conversions? This matters more after 2026 because of the SECURE 2.0 Roth catch-up rule that requires participants earning over $150,000 to make catch-up contributions on a Roth basis.
- Backdoor Roth concerns: If you plan to use the backdoor Roth strategy, you generally want pre-tax IRA balances to stay inside a 401(k) rather than in a traditional IRA, because the pro-rata rule applies to IRAs but not 401(k)s.
That last point is subtle and important. If you roll a $500,000 pre-tax 401(k) into a traditional IRA and then try to do an $8,600 backdoor Roth contribution, the IRS pro-rata rule means almost the entire conversion will be taxable. Keeping the money in a 401(k) sidesteps that problem.
Should I roll my 401(k) into an IRA?
For most people I work with — clients with $1 million or more in retirement assets who are leaving a job in their late 50s or early 60s — rolling to a traditional IRA at a low-cost custodian is the right move. Here is why.
You get the entire investment universe instead of a limited fund menu: total market index funds at 0.03%, individual treasury bonds, municipal bond ladders, dividend funds, and so on. You get to consolidate multiple old 401(k)s into one place, which simplifies rebalancing, RMD planning later, and beneficiary designations. And you open the door to two strategies that 401(k)s usually do not allow: partial Roth conversions and qualified charitable distributions after age 70½.
The trade-offs are real:
- IRAs have weaker creditor protection than 401(k)s in some states. Massachusetts protects IRAs in bankruptcy under federal law, but not necessarily from civil judgments.
- You lose the rule of 55. IRA withdrawals before 59½ trigger the 10% penalty unless you use a 72(t) substantially equal payment plan or another exception.
- You take on the responsibility of managing the investments yourself or hiring someone to do it — which, candidly, is where most people benefit from working with a fee-only fiduciary.
What about a Roth conversion?
Leaving a job is one of the best moments to consider Roth conversions, especially if you will have a year or two of low income before Social Security and required minimum distributions begin at age 73. You can roll the 401(k) into a traditional IRA, then convert chunks each year, paying tax now at known rates instead of unknown future rates.
The math matters. The top of the 2026 24% federal bracket is $403,500 for a married couple filing jointly. If you and your spouse have $120,000 of other income, you can convert another roughly $283,500 and stay in the 24% bracket. In Massachusetts, that conversion also gets hit with the 5% state tax — so plan for combined federal-plus-state of about 29% on the converted amount, and write a check from outside the IRA to pay the tax bill.
This is the kind of decision worth modeling carefully. I have written more about the trade-offs in Roth IRA conversions in retirement.
What if I own company stock in my 401(k)?
If you have employer stock with a low cost basis sitting in your 401(k), do not roll it into an IRA without first considering Net Unrealized Appreciation. With NUA, you distribute the company stock in-kind to a taxable brokerage account, pay ordinary income tax only on the original cost basis, and then pay long-term capital gains rates on the appreciation when you eventually sell.
Example: you have $400,000 of employer stock with a $50,000 cost basis. In a normal rollover, the entire $400,000 eventually comes out as ordinary income, potentially at federal rates of 32% to 37%. With NUA, you pay ordinary income tax on the $50,000 basis now — perhaps $12,000 in federal tax — and the $350,000 of growth is taxed at long-term capital gains rates of 15% or 20% later. The savings can easily exceed $50,000 to $100,000 on a single position.
NUA has strict requirements — including a lump-sum distribution in a single tax year — and once you blow the rules, the strategy is gone forever. This is one of the highest-stakes mistakes I see people make on their own.
Should I ever just cash out?
Almost never. If you are under 59½, cashing out means federal ordinary income tax, the 10% early withdrawal penalty, and Massachusetts state income tax of 5%. A $500,000 balance for a 55-year-old in the 24% federal bracket could net out to less than $300,000 after taxes and penalties. It is the financial equivalent of selling your house to pay for a vacation.
The narrow exception: if you are between 55 and 59½, separated from service, and need the money for a defined short-term purpose like a bridge until Social Security, the rule-of-55 distribution from the old 401(k) — not an IRA, not a new employer’s plan you have rolled into — lets you tap funds penalty-free. Even then, you owe ordinary income tax, so this works best when you can stay in a low bracket.
How a flat-fee advisor approaches this differently
A traditional 1% AUM advisor has a clear financial incentive to recommend the rollover to an IRA they will manage, because their fee is calculated on the IRA balance. A $2 million rollover earns them $20,000 per year — every year, for life. That is not an accusation of bad intent. It is just the structural reality of the AUM fee model.
Evergreen Wealth Management charges a fixed monthly fee that does not change whether you roll $500,000 or $5 million. Our recommendation about what to do with your 401(k) is based on what is actually best for you, not what grows our paycheck. Sometimes that means we will tell you to leave it in your old 401(k). Sometimes we recommend keeping balances in the new employer’s plan to protect a backdoor Roth strategy. The structure of our fee removes the conflict.
If you want to see how that works in practice, the fee structure page shows our flat monthly pricing. The flat-fee vs. AUM comparison walks through the math on a typical rollover decision.
Step by step: how to actually do a 401(k) rollover
- Decide on the destination: new 401(k), traditional IRA, or Roth IRA if you are doing a conversion. Open the account first if it does not exist.
- Request a direct rollover, also called a trustee-to-trustee transfer. Tell the old plan to send the check directly to the new custodian, or to send a check made payable to the new custodian “FBO [your name].” Avoid 60-day indirect rollovers; they trigger 20% mandatory withholding and you can only do one per 12-month period.
- Choose your investments before the money lands, not after. Cash sitting in a brokerage IRA earns nothing and creates timing risk.
- Confirm cost basis tracking if any after-tax contributions are in the plan. You do not want to pay tax twice.
- Update beneficiary designations on the new account. The old beneficiary designation does not carry over.
Frequently Asked Questions
How long do I have to roll over my 401(k)?
There is no hard deadline for a direct rollover — your money can sit in the old 401(k) indefinitely if the plan allows it, which most do above a $7,000 balance. If you receive an indirect rollover check made payable to you, however, you have 60 days to deposit it into another retirement account or it becomes a taxable distribution.
Will I owe taxes on a 401(k) rollover?
No, if you do a direct rollover from a traditional 401(k) to a traditional IRA or new 401(k). It is a non-taxable event reported on Form 1099-R with code G. You will owe taxes if you convert to a Roth IRA, take a cash distribution, or trigger the 20% withholding on an indirect rollover and fail to make up the difference within 60 days.
Can I roll a 401(k) into a Roth IRA in one step?
Yes, but the entire amount converted becomes taxable income that year. For most people with $500,000+ balances, a single-year conversion pushes them into the top federal bracket and creates a Medicare IRMAA surcharge problem two years later. A multi-year partial conversion strategy almost always produces a better tax outcome.
How does Evergreen Wealth Management help with a 401(k) rollover?
We model the trade-offs for your specific situation before you make the decision — fees in the old plan versus an IRA, NUA opportunity on employer stock, Roth conversion strategy across multiple years, backdoor Roth implications, and how the rollover fits into your overall tax and withdrawal plan. Because we charge a flat monthly fee instead of a percentage of assets, our advice on whether to roll, when to roll, and where to roll is independent of how much you ultimately move.
The bottom line
The 401(k) rollover decision looks simple from the outside and is anything but. Get it right and you save tens of thousands in taxes, unlock better investments, and set up clean tax strategy for the next 20 years. Get it wrong — by missing NUA, triggering pro-rata problems, or converting too much in a single year — and the mistakes compound forever.
If you would like a second opinion on what to do with a 401(k) from a former employer, you can start the conversation with Evergreen. We will tell you what we would actually do, not what makes us money.
Nick Stevens, CFP® is the founder of Evergreen Wealth Management in Boston, a flat-fee financial planning and investment management firm. Evergreen charges a fixed monthly fee regardless of portfolio size. Learn more about how we work at our fee structure page or get in touch at contact us.