When you leave a job, your old 401(k) does not have to stay where it is — and often it should not. Old accounts tend to sit in default funds with limited choices and higher fees. Understanding your rollover options, and the tax traps around them, is one of the highest-value financial moves most people can make. A coordinated 401(k) financial advisor can handle the mechanics so you avoid the mistakes below.
You generally have four choices: leave it in the old plan, roll it into your new employer’s plan, roll it into an IRA, or cash it out. Cashing out is almost always the worst option — you owe income tax plus a 10% early-withdrawal penalty if you are under 59½, which can erase a third or more of the balance. For most people, rolling into an IRA offers the widest investment selection and the lowest fees, while consolidating accounts you are no longer actively managing into one place.
Always choose a direct rollover, where the money moves trustee-to-trustee and never touches your hands. With an indirect rollover, the plan sends you a check — but it withholds 20% for taxes, and you have just 60 days to deposit the full original amount (including the withheld 20% out of your own pocket) into the new account, or the shortfall is treated as a taxable distribution with penalties. The 60-day rule catches thousands of people every year. A direct rollover sidesteps all of it.
A traditional 401(k) rolls tax-free into a traditional IRA. You can also convert pre-tax savings to a Roth IRA, paying tax now in exchange for tax-free growth and withdrawals later. Whether that makes sense depends on your current versus expected future tax bracket — and the years between leaving a job, or between retirement and required minimum distributions, are often a prime window to convert at low rates. This is a core part of our retirement planning work, where we model the timing so a conversion saves lifetime taxes rather than triggering a needless bill.
A rollover is only the first step; the bigger question is how the money is invested afterward. Too many rollovers land in a money-market default and sit in cash for months. We build a diversified, low-cost allocation matched to your age and goals and keep it rebalanced, coordinated with your taxes and the rest of your portfolio through our investment advisory service. If you are self-employed, a Solo 401(k) or SEP-IRA can also shelter far more than a standard plan.
If you have an old 401(k) sitting at a former employer — or several scattered across past jobs — it is worth a second opinion. Call (225) 396-5511 for a free review of your accounts, your options, and what to fix first.
Michelet Financial integrates tax strategy with investment and valuation advice under one roof. Serving clients in all 50 states.
Call (225) 396-5511Usually yes. Rolling an old 401(k) into an IRA typically gives more investment choices and lower fees and consolidates accounts you are no longer managing. Leaving it or rolling into a new employer plan can make sense in specific cases; cashing out rarely does.
A direct rollover moves funds trustee-to-trustee and is tax-free. An indirect rollover sends you a check with 20% withheld, and you must deposit the full amount within 60 days or owe tax and penalties. Always choose a direct rollover.
A direct rollover from a traditional 401(k) to a traditional IRA is tax-free. Converting to a Roth IRA is taxable now but grows tax-free afterward. We model whether a conversion saves you money based on your bracket.
Yes. You can roll an old 401(k) into an IRA or into a Solo 401(k), which also lets self-employed savers contribute far more than a standard plan. We set up and invest the right account for your income.