What to Do With Your 401(k) If You're Changing Jobs Before Retirement in 2026
Key Points
When you switch jobs, it can be tempting to cash out a 401(k).
Doing so could leave you paying costly penalties and put you at risk of a future shortfall.
You may be able to roll your old 401(k) into a new workplace plan. And if not, there's always an IRA.
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Changing jobs can be an exciting step forward for your career. But it can also come with a huge conundrum -- what should you do with your 401(k)?
If you're making a job change this year, it's important to understand what options you have. Here's what to know.
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Cashing out isn't the best move
If you're switching jobs and have a relatively small 401(k) balance, you might assume that cashing it out is the simplest move. But doing so could cost you.
If you're not yet 59 and 1/2 years old, you'll face a 10% early withdrawal penalty for cashing out a 401(k). Even on a small amount -- say, $3,000 -- that's a loss you don't need.
Cashing out a larger 401(k) early can be problematic not just because of the penalty, but because it could leave you with a savings shortfall down the line.
Imagine you're 35 and cash out a $20,000 balance this year. If your investments normally give you an 8% yearly return, which is below the stock market's average, and you're not retiring until 65, you'll lose out on 30 years of gains.
The total impact? You could end up missing out on roughly $200,000 in retirement savings.
That's because 30 years of gains on $20,000 at the aforementioned return could amount to about $180,000 . So if you forgo those gains and spend the $20,000 you cash out, you could end up at a huge deficit down the line.
Even if you're old enough to cash out your 401(k) without facing a penalty, you may not want to do so if you won't be retiring for a while and you're talking about a significant sum of money. Keeping those funds invested could help ensure that your total savings balance doesn't take a hit.
Find a new home for your 401(k)
Leaving a job doesn't automatically mean having to move your 401(k). You may be able to keep your savings in your old workplace plan.
That's generally not the best idea, though. Managing multiple retirement accounts can be tricky, so a better bet is generally to move that money into a new one.
If your new job offers a 401(k), you may be able to roll your old 401(k) into it directly. If you won't have access to a 401(k) at your new job, you can open an IRA and roll your old 401(k) in there.
Getting a new job is an exciting milestone. As you prepare to adjust to your new workplace, make a plan for your 401(k) so it doesn't fall by the wayside. And definitely don't rush to cash out that account, since the consequences may be more painful than you'd think.
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