Understand your 401(k) options when you leave a job. Learn about rolling over, withdrawing, or keeping your funds secure for retirement.

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What happens to your 401(k) when you quit your job?

What happens to your 401(k) when you quit your job?
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9 minute read   •   October 06, 2025
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Switching jobs? It happens a lot. In fact, the average worker changes employers about once every 4 years.1 If you're starting a new job, consider this important but sometimes overlooked question: What should you do with the money in your former employer's 401(k) plan? Let's go over your options and some pros and cons for each.

When you leave a job, you usually have 4 options for your 401(k) savings: keep it in your former employer's plan, roll it over to an IRA, roll it over to a new employer's plan, or cash it out. Each option comes with its own set of benefits and potential drawbacks, and the choice you make can have a lasting impact on your financial future. It's also important to make your decision relatively quickly, as delays could lead to missed opportunities and potential penalties.

Understanding your 401(k) plan's vesting rules is also essential. The vested portion is the percentage of your 401(k) that you fully own, and it can vary based on your employer's vesting schedule. While any contributions you make are always 100% vested, employer contributions are often gradually vested as an incentive for you to remain with the company. You should check your plan rules for these details.

Looking to roll over your employer plan?

Options for managing your 401(k)

Making an informed decision about your 401(k) can help you stay on track with your retirement goals and ensure that your hard-earned savings continue to work for you.

Keep your 401(k) with your former employer

If you have at least $5,000 in your account (or $7,000 depending on your plan rules) and you're happy with the plan, you can usually leave your money in place.

Some pros

  • You can typically keep your investment selections.
  • The plan may offer low-cost investment options not available elsewhere.
  • You won't pay taxes on your money until you take a distribution or make a withdrawal.2
  • Your plan may offer you the flexibility to take partial distributions or installment payments.

 

Some cons

  • You can't continue contributing to the plan.
  • You're limited to the plan's selected investment options, while an IRA allows for a wider range of investments to choose from.
  • You usually need at least $5,000 in your account (or $7,000 depending on your plan rules).
  • Your ability to make withdrawals may be limited depending on the plan's options. Note: Some plans consider you leaving the job an "eligible distribution event," meaning you can withdraw funds without penalty.
  • Once you reach age 73, you'll need to start taking required minimum distributions (RMDs). Note: Roth 401(k) money isn't subject to RMDs.

Roll over your 401(k) to a new employer's plan

If your new employer's plan accepts rollovers, you can move the money from your old plan to the new plan.

Some pros

  • All your retirement plan savings will be in one place.
  • You won't pay taxes on the money until you take a distribution or make a withdrawal.2
  • You may have access to investment options or services that your previous employer's plan didn't offer.

 

Some cons

  • Your investment options may change based on what your new plan offers.
  • The cost of those investments may be higher, depending on the plan.
  • You may not have access to the same services as in your previous employer's plan (for example, advice).
  • If you're no longer employed by the company when you reach age 73, you'll need to start taking RMDs. Note: Roth 401(k) money isn't subject to RMDs.

Explore common questions about 401(k) rollovers

Move your 401(k) into an IRA

An IRA is a personal, tax-deferred account that gives investors an easy way to save for retirement. You can roll over your money to an IRA, which offers a wide range of investment choices.3

If you're interested in this option, consider a Vanguard IRA®. Why? The average Vanguard ETF® and mutual fund expense ratio is 84% less than the industry average.4 Over time, that can mean more money stays in your account instead of going toward expenses. When you choose a Vanguard IRA, you can also take advantage of our personalized financial advice services.

Want to open a Vanguard IRA?

You can choose between a traditional or Roth IRA, depending on your situation and when you want your tax break—now or later. You can also explore whether a Roth conversion makes sense for you.

Learn about traditional vs. Roth IRAs, conversions, and more

Some pros

  • You'll have access to more investment options and will no longer be limited to what your employer's plan offers.
  • You won't pay taxes on your money until you take a distribution or make a withdrawal.2
  • You can take advantage of Vanguard's range of personalized financial advice services, if you choose.
  • You may have more flexibility to use the money for a first-time home purchase or education expenses.
  • You can choose between a traditional or Roth IRA, depending on when you want your tax break.
  • You may have the flexibility to take partial distributions or installment payments, subject to certain rules.

Some cons

  • An employer plan may offer lower-cost investments, depending on your investment choices. Your costs may vary based on your mix of investments.

3 easy steps to roll over your employer-sponsored plan to Vanguard

HELPFUL HINT

If you invest in a company stock fund in your employer plan, please consult with a tax advisor for more information on tax treatment before moving your balance to an IRA.

Cashing out and the consequences

You can cash out your vested plan balance when you leave an employer. But that could have a major impact on your savings—and your retirement readiness. And you could owe a lot of money to the IRS. Add up all the taxes and penalties, and it could mean years of progress wiped out in a single day. So carefully consider this option before you act.

Some pros

  • The money is yours to use as you like immediately.
  • You can use the money for emergency expenses or to help you pay off debt.
  • If you're age 55 or older, you may be able to avoid the 10% federal penalty tax.5

 

Some cons

  • The federal government withholds 20% of your check toward your taxes. This is the mandatory withholding, but your actual tax liability may be higher or lower depending on your tax bracket.
  • If you cash out before age 59½, you'll likely owe a 10% federal penalty tax (exceptions may apply).
  • You'd also likely owe income tax on the money next time you file your taxes. Note: This applies to pre-tax contributions and earnings. Roth contributions may be tax-free if they're qualified.
  • Cashing out your savings means it won't be invested anymore, so the money won't be able to grow.

HELPFUL HINT

Take time to weigh your withdrawal options. You may want to talk them over with a financial advisor.

Key 401(k) rollover considerations

Vesting

Understanding vesting is crucial when deciding what to do with your 401(k) after leaving a job. Vesting refers to the portion of your 401(k) that you fully own. Employer contributions, such as matching funds, often have a vesting schedule, which means you may not be entitled to the full amount if you leave the company before a certain period. If you leave before being fully vested, you will forfeit the unvested portion of your 401(k). Therefore, it's important to check your vesting schedule to determine how much of your 401(k) you can take with you.

Outstanding loans

If you have an outstanding loan from your 401(k), this can complicate your decision. When you leave your job, you typically have a limited time—usually 60 to 90 days—to repay the loan in full. If you fail to repay it within that time, the remaining balance will be treated as a distribution, which can trigger income taxes and a 10% early withdrawal penalty if you're under age 59½. This can significantly reduce your retirement savings and create an unexpected financial burden. Consider your ability to repay the loan before making any decisions about your 401(k).

Account balance

The amount of money in your 401(k) account can affect your options. If your balance is less than $5,000 (or $7,000 for some plans), your former employer may automatically cash out your account or roll over the money into an IRA without your consent. If your balance exceeds this threshold, you're generally able to leave your money in the plan, initiate a rollover, or cash out. It's important to know your account balance so you understand your options and can make an informed decision.

Fees and investments

Fees and investment options are critical factors to consider when managing your 401(k). Some 401(k) plans have higher fees than IRAs, which can erode your savings over time. Additionally, the investment options in your former employer's plan may be more limited compared with those available in an IRA. Rolling over to an IRA can provide a broader range of investment choices and potentially lower fees. However, it's essential to compare the fees and investment options of your current 401(k) plan with those of potential IRAs or new employer plans to make the best decision for your financial future.

Tax implications

The tax implications of your 401(k) decisions can be significant. If you choose to roll over your 401(k) to an IRA or a new employer's plan, the process is generally tax-free—if you follow the proper procedures. However, if you cash out your 401(k), you'll owe income tax on the entire amount, as well as a 10% early withdrawal penalty if you're under age 59½. This can result in a substantial loss of your retirement savings. It's important to carefully consider the tax consequences of each option and consult with a financial advisor if you're unsure about the best course of action.

How long do you have to move your 401(k) savings?

When you leave a job, it's important to act quickly to manage your 401(k) savings, but you do have some time to make your decision. Generally, you have 60 days from the date you receive a distribution from your 401(k) to roll it over to an IRA or a new employer's plan without incurring tax penalties. If you have an outstanding loan from your 401(k), you may need to repay it, typically within 60 to 90 days, to avoid it being treated as a taxable distribution.

Missing these deadlines can have serious financial consequences, such as having to pay income taxes on the distributed amount and a 10% early withdrawal penalty if you're under age 59½. To avoid these penalties, it's a good idea to start the rollover process as soon as possible and ensure all necessary paperwork is completed within the required time frames.

Ready to start your rollover?

FAQs: Common concerns about 401(k) management

No, you won't lose your 401(k) contributions if you quit your job. The money you've contributed to your 401(k) is yours to keep. However, if your employer has made matching contributions, you may not be fully vested in those funds depending on your company's vesting schedule. Before leaving your job, check your vested balance to see how much of your employer's contributions you'll hold onto.

If you need to access your 401(k) funds after leaving a job, you have a few options. You can leave the money in your former employer's plan, as long as you've met the minimum $5,000 or $7,000 threshold. You can also choose to roll it over to an IRA or a new employer's plan, or you can cash out the account. Cashing out is generally not recommended as it can lead to significant tax penalties and early withdrawal fees. If you choose to roll over, make sure to complete the necessary paperwork within the 60-day window to avoid taxes and penalties.

Yes, your 401(k) balance can continue to grow even if you stop contributing. The existing funds in your 401(k) will remain invested and can generate returns based on the performance of your chosen investments. However, the growth will be slower than if you were still contributing. It's important to periodically review and adjust your investment strategy to ensure it aligns with your long-term financial goals.

Borrowing or withdrawing from your 401(k) is possible—and for some, it can be a practical way to access funds in a pinch. However, loans are only available within a current employer plan. Once you leave the employer, you can no longer borrow, even if you keep money in the plan. Loans can also make rollovers a bit tricky. If you have an outstanding 401(k) loan, you typically need to repay it within 60 to 90 days to avoid it being treated as a taxable distribution. If you miss this deadline, the unpaid loan balance will be subject to income tax and a 10% early withdrawal penalty if you're under age 59½. It's always best to consult with a financial advisor to understand the best options for your specific situation.

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1Source: Employee Tenure in 2024. U.S. Department of Labor, Bureau of Labor Statistics, 2024.

2Taking money from your retirement account can affect how much you'll have to pay in taxes. You'll owe taxes on pre-tax money. You won't owe taxes on Roth earnings as long as you are age 59½ or older and it's been at least five years since your first Roth contribution. If required by law, Vanguard will withhold some taxes for you. You may need to pay a 10% federal penalty tax if you take money out early.

3Whether you keep your money where it is, move it to an IRA, or move it to another employer's plan depends on your situation and preferences. Some things to consider are available investments and services, fees and expenses, and protection from creditors. Also consider withdrawal penalties, required distributions, and the tax effects of moving company stock to an IRA. There are other factors too. Weigh the pros and cons before you make your decision.

4Vanguard average ETF and mutual fund expense ratio: 0.07%. Industry average ETF and mutual fund expense ratio: 0.44%. All averages are asset-weighted. Industry average excludes Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2024.

5Public safety workers employed by states or the federal government, and private-sector firefighters, may be eligible for penalty-free withdrawals at age 50 or over. They may also qualify if they have 25 years of service under their retirement plan and are under age 50. See IRS guidance for more info regarding early withdrawals due to separation from service.

Visit vanguard.com to obtain a Vanguard fund or Vanguard ETF prospectus, or, if available, a summary prospectus, which contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

All investing is subject to risk, including the possible loss of the money you invested.

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.