What to Do with Old 401(k) Funds When You Change Jobs

Starting a new job involves a careful decision-making process, and your decision to leave one workplace for another is usually well-planned. But did that plan include what to do with old 401(k) funds when you leave one job for another? That’s as important as choosing a job—if you want to retire one day. Don’t leave those funds behind.

This article explains ways to reinvest old 401(k) funds after finding new employment. There are a few strategies you can use to ensure that money continues growing to build retirement wealth.

Why It’s Important to Know What You Can Do with Old 401(k) Funds

How you decide to handle the 401(k) funds from your past employer is crucial. You’re faced with choices that impact the growth potential and security of your retirement savings. Especially if your new employer doesn’t offer retirement benefits or if you’ve opened your own business.

Below are strategies you should understand when deciding what to do with old 401(k) funds.

Keep the funds with your former employer’s plan.

While this is an option, understand that you might lose control of choosing investments available for that plan. And you’ll miss out on potential employer-matched contributions if your new employer offers them.

Move old 401(k) funds to your new employer’s plan.

This allows you to take advantage of employer matches if your new employer offers them. But your investment options are probably limited to traditional assets (stocks, bonds, mutual funds), which is typical of conventional employer-sponsored plans.

Roll the funds over to an individual traditional or Roth IRA.

Individual plans are advantageous if your new employer doesn’t offer retirement A desk with a keyboard, coffee cup, and the words "new job" indicating what to do with old 401(k) funds when you change jobs.benefits. Traditional IRAs only accept contributions of pretaxed earnings, which is the same as typical 401(k)s. So, you can easily move funds from one account to the other with no tax implication.

Roth IRA contributions are made from earnings that were already taxed. If you move funds from a pretax 401(k) into a Roth IRA, you’ll owe tax on the funds you rolled over. However, this is considered an advantage for many. Distributions of earnings in the account are tax-free in retirement.

Open a solo 401(k) and rollover funds from your old 401(k).

A solo 401(k) was designed for small business owners, including the self-employed. You can even use a solo 401(k) if you own a side business. This plan offers much of the same retirement benefits and rewards as their conventional counterparts offered by larger employers.

Take control of your retirement funds and open a self-directed IRA or solo 401(k).

Self-directed retirement accounts allow alternative investments like real estate and private equity. This asset class extends far beyond Wall Street’s typical offerings of stocks, bonds, and mutual funds, providing unique wealth-building opportunities that conventional plans don’t offer.

What Is a Self-Directed Retirement Plan?

Owners of self-directed accounts have complete control over their retirement funds and investing decisions. They call the shots, and they choose their own assets. They don’t rely on third-party administrators or brokers to make these decisions for them.

The greatest benefit self-directed plans have over conventional retirement plans is access to alternative investments.

Imagine the ability to invest in things like:

Sometimes, these investments, especially real estate, can earn returns at a faster pace than traditional assets. Plus, you have control over your investments, and you can invest at a pace you’re comfortable with…every single day.

Final Thoughts on What to Do with Old 401(k) Funds

Actively managing your 401(k) during a job change is crucial to ensure your retirement savings continue to thrive. In today’s uncertain economic environment, considering a self-directed IRA or solo 401(k) to invest in alternative assets can be a wise strategy to diversify and strengthen your retirement portfolio.

And, if you want to learn more about how to use your old 401(k) funds using a self-directed IRA, contact Advanta IRA today.

Additional reading about self-directed retirement plans:

Self-Directed IRAs vs. Traditional IRAs: Which Plan Is Best for You?

Solo 401(k)s vs. SEP IRAs vs. SIMPLE IRAs: Retirement Plans for Small Business Owners

What Are Alternative Investments? Here’s a List of 120+ for You & Your SDIRA

3 Ways to Find an Old 401(k)

About Scott Maurer

Scott Maurer, Vice President of Sales for Advanta IRA, is a recognized expert in the field of self-directed IRAs. With a law degree from the University of Florida and as a designated Certified IRA Services Professional (CISP), Scott’s keen understanding of rules and regulations fuels his passion to educate others on the power of investing in alternative assets using self-directed IRAs. Scott is a frequent guest on retirement and investing webinars and podcasts, and he has shown thousands of individuals how to achieve financial freedom by teaching them how to use their retirement funds to invest in private placements, real estate, private lending, and more. Throughout his two decades in the industry, he has watched numerous unique investments unfold, giving him great perspective of what is possible when people take control of their retirement funds and investing decisions.