When Should I Roll Over an Old 401(k) From a Previous Job?

February 6, 2023

In this highlight, we discuss when you should rollover an old 401(k) from a previous job.


If you’re like many people, you may have a 401k from a former employer that you’re considering rolling over into an IRA. But when is the best time to do so? And what are the steps you need to follow to make sure you’re making the right decision?

First, it’s important to understand your options. When you leave an employer, you typically have three options for your 401k: roll it over into an IRA, roll it over to your new employer’s 401k (if you have one), or leave it where it is (assuming the account is large enough to justify staying in the plan).

Before you decide on the best option, it’s important to consider the cost and fee differences between each option and to do a bit of due diligence. Cashing out your 401k is not a good option, as if you’re under 59 and a half, you’ll not only pay ordinary income tax on the distributions, but you’ll also get hit with a penalty. So, you want to make sure you understand which one of the three options is the best for you.

Assuming you’ve done all the work and decided that rolling over your 401k into an IRA is the right choice, here’s what you need to do:

  1. Find out when your company has credited all your money. Before you leave your job, make sure you’ve received all the matching money and contributions you’re entitled to. Some plans may fund for the prior year after the tax filing deadline of the following year, so you want to make sure you wait until your account is full.
  2. Determine if you’re fully invested or dollar cost averaging. Some people ask whether they should fully invest the money in the new IRA or dollar cost average it. The answer is to fully invest it. Dollar cost averaging is typically not necessary, even if the money comes in as a big check or cash, as it was fully invested in the 401k. You just need to liquidate it and send the check to your new custodian (either an IRA or a new 401k or 403b).
  3. Put the money back to work. There may be some opportunity costs for the week or two that the money is in cash, but it’s better to put the money back to work in a better plan. Even if the market goes down right after you roll over your 401k into an IRA, that’s okay, as you’re in a better plan now.

In conclusion, rolling over a 401k into an IRA can be a great way to get your retirement savings into a better plan, but it’s important to follow the steps and make the right decision for your specific situation. Don’t hesitate to reach out to a financial advisor for help if you need it.

To learn more, check out our free resources here.



Most Recent Episodes

Financial Advisors React to Money Advice from ChatGPT

Will ChatGPT be your new financial advisor? In this react episode, we’ll break down some money advice from ChatGPT and compare it to our own thoughts and opinions. Enjoy the Show? Sign up for the Financial Order of Operation (FOO) Online Course! Sign up for our Know...

Financial Planning 101 (By Age) 2023 Edition

Throughout every decade, there are different areas of your financial life that come in and out of focus. In this episode, we'll discuss what you need to focus on by age, pitfalls to watch out for, and how to know you're doing it right. In this episode, you'll learn:...

Is the 2023 Housing Crash Around the Corner?

Housing prices skyrocketed after the pandemic to all-time highs, and mortgage rates have more than doubled since 2020. Homes are harder to purchase for more Americans, which means it’s more important than ever to make sure you are ready to buy before purchasing. In...

Watch This Before Rebalancing Your Investment Portfolio!

85% of Americans don’t rebalance their 401(k). Are they making a huge mistake? In this episode, we’ll discuss the “why” behind rebalancing, how to do it, and the data on whether or not rebalancing can increase your return. In this episode, you’ll learn: What...

Don’t Make This HUGE 401(k) Mistake!

Americans are making a HUGE mistake in their 401(k) that could cost them thousands by retirement. We’ll talk about why this is happening and how you can avoid making the same mistake in this Q&A episode! For more information on how to make the most out of every...

Alex Hormozi’s Top Money Advice! (Financial Advisors React)

In this episode, we react to Alex Hormozi's financial advice. Enjoy the Show? Sign up for the Financial Order of Operation (FOO) Online Course! Sign up for our Know Your Number Course! Check out our Net Worth Tool! Get FREE downloads full of financial advice from...

Everything You Need to Know About Finances in Your 20s

In this episode, we discuss everything you need to know about finances in your twenties. In this episode, you’ll learn: The top financial advice for your twenties How to start building wealth and the steps you should take Enjoy the Show? Sign up for the Financial...

The Most Valuable Asset in Building Wealth!

This episode will show you how to maximize the most valuable resource you have - starting right at this moment. What is it, you may ask? It’s TIME. If you give your money time to grow, you’ll be amazed at how much your dollars can become - it’s incredible! How wild is...