I left my job. What happens to my savings?

Read time: 5 to 6 minutes

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 retirement plan? Let’s go over the options you may have and some pros and cons of each.

Stay in your plan

If you have at least $5,000 in the account, you can usually leave your money in your former employer’s plan at Vanguard. If you're happy with your plan, you may want to stay. 
Some pros
  • 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 withdrawal.*
  • Your plan may offer you the flexibility to take partial distributions or installment payments.
  • If you have a plan loan, you can use electronic bank transfers to continue making payments.2
Some cons
  • You can’t continue contributing to the plan.
  • You usually need at least $5,000 in your account.
  • Your withdrawal options may be limited, depending on what the plan offers.
  • Once you reach age 73, you’ll need to begin taking required minimum distributions (RMDs). Note: Beginning in 2024, Roth 401(k) money will not be subject to RMDs.
1Source: U.S. Department of Labor, Bureau of Labor Statistics. Employee Tenure in 2022. 2022.

2If you have a loan and leave your employer, you can pay back the loan in full or continue making payments using electronic bank transfers. But if you don’t choose either of these options, the unpaid balance will be reported to the IRS as a withdrawal. That amount may then be subject to income tax. And if you’re younger than age 59½, you may also owe a 10% federal penalty tax. 
Looking for more help? Your plan may offer advice and money management services. Depending on the service, you can get a little guidance or ongoing professional money management of your retirement plan investments. Keeping your money in your plan could allow you to take advantage of this powerful benefit.

Roll over to an IRA

An IRA is a personal, tax-deferred account that gives investors an easy way to save for retirement. You can move your money to an IRA, which offers a wide assortment of investment options.**

If you’re interested in this option, consider a Vanguard IRA®. Why? The average Vanguard fund expense ratio is 83% less than the industry average.3 Over time, that can mean more money stays in your account—whether you leave your money in the plan or roll it over to a Vanguard IRA.

Want to open a Vanguard IRA?
Call us at 888-387-5534.
You can consider 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 might make sense for you.
Some pros
  • You won’t pay taxes on your money until you take a distribution or withdrawal.*
  • You’ll have access to Vanguard’s advice services to manage your investments—even if advice wasn’t available in your previous employer’s plan.
  • 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 a Roth IRA, depending on when you want your tax break.
Some cons
  • An employer plan may offer investments at lower costs than those in IRAs, depending on your investment choices. Your costs may vary based on your mix of investments.
  • Once you reach age 73, you’ll need to begin taking RMDs from a traditional IRA. Note: Roth IRA money is not subject to RMDs.
3Vanguard average mutual fund expense ratio: 0.08%. Industry average mutual fund expense ratio: 0.47%. All averages are asset weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2022.
If you invest in a company stock fund in your plan, please consult a tax advisor for more information on the tax treatment of company stock.

Roll over to a new employer’s plan

If your new employer’s plan accepts rollovers, you can bring the balance over from your old employer’s 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 withdrawal.*
  • 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, such as advice.
  • If you’re no longer employed by this company when you reach age 73, you’ll need to begin taking RMDs. Note: Beginning in 2024, Roth 401(k) money will not be subject to RMDs.

Cash out your savings

You can cash out your entire retirement 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 now as you like.
  • You can use the money for emergency expenses or to help you pay off debt.
Some cons
  • The federal government withholds 20% toward your taxes before you get your check.
  • If you cash out before age 59½, you will owe a 10% federal penalty tax on the money (except any Roth or after-tax contributions).
  • You’d also likely owe income tax on the money next time you file your taxes.
  • Cashing out your savings means your money will no longer be invested, so it won’t be able to grow.
Take time to weigh your withdrawal options. You may want to talk them over with a financial advisor.

It’s time to make a decision

See what makes sense for you. When you’re ready, we’re here to help.
*Taxes: Taking 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.

**Whether 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.

Whenever you invest, there’s a chance you could lose the money. The performance of a company stock fund depends on the price of a single stock, which can move up or down dramatically. So this type of fund can be riskier than a stock mutual fund, which may own hundreds or thousands of stocks.

Before you invest, get the details. Consider the fund’s objective, risks, charges, and expenses. The fund’s prospectus (or summary prospectus, if available) will tell you these important facts and more. So read it carefully. Call Vanguard at 800-523-1188 to get one. Or you can find one at vanguard.com.

Vanguard does not provide individual tax advice. You should consult your tax advisor before making any decisions as to your specific circumstances.

Advice is provided by Vanguard Advisers, Inc., a federally registered investment advisor. Eligibility restrictions may apply. VAI cannot guarantee a profit or prevent a loss.