What Happens to Your 401(k) When You Retire?

Quick Answer

When you retire, you don't have to automatically move your 401(k). You generally have several choices:

• Leave it with your former employer. Your money stays invested in the plan.
• Roll it into an IRA. This will usually give you more investment choices and control.
• Move it to another employer's plan. This may be an option if you continue working and the new plan accepts rollovers.
• Start taking withdrawals. You can use the account to help provide retirement income.
• Use a combination of these choices. You don't necessarily have to make one decision with the entire account.

Which option fits you best will depend on how you're going to live your life and use your money in retirement. That will change as you move through your retirement.

Before making a move, understand what you need the account to do and what you will give up by moving it.

What Happens If You Leave Your 401(k) Alone?

Doing nothing is actually a decision.

If your former employer allows you to keep the account, your money can stay invested in the 401(k) after you retire. You won't make new employee contributions, but your existing investments will continue to rise and fall with the market.

Leaving it where it is may make sense if:

• you like the investment options
• the fees are reasonable
• the account is easy to manage
• the withdrawal options work for you

You don't have to move the account simply because you've retired. You can leave it alone and revisit the decision later.

What Should You Think About Before Moving Your 401(k)?

Start with how you're going to use the money.

• If you don't expect to touch the money for several years: You may prioritize more investment options, lower costs, and simplicity.
• If you're going to use the account for retirement income: Withdrawal flexibility will become a bigger priority.
• If you have several retirement accounts: Consolidating them may make your finances easier to manage.
• If you expect to need the money soon after retiring: Make sure you understand how withdrawals work before moving the account.

Your goal isn't simply to find a new home for your 401(k). You want the account to work with the retirement you're actually planning to live.

Should You Leave Your 401(k) With Your Old Employer?

Before deciding, ask:

• Do I like the investment choices?
• What am I paying in fees?
• Can I take partial withdrawals?
• Can I set up recurring withdrawals?
• Can I easily change or stop those withdrawals?
• Can taxes be automatically withheld?
• Is the account easy to manage?
• Will moving the account make my finances simpler?
• Am I giving up anything by moving it?

You don't get extra points for consolidating accounts. Move your 401(k) when the new arrangement will work better for you, not simply because you've retired.

Why Would You Roll Your 401(k) Into an IRA?

An IRA will usually give you more control over your money and a broader selection of investments. It may also make your finances easier to manage if you have retirement accounts from several employers.

An IRA may give you:

• more investment choices
• more control over where the account is held
• easier consolidation of several retirement accounts
• more flexibility in managing investments and withdrawals

But don't roll your 401(k) into an IRA simply because that's what you think you're supposed to do when you retire. Compare what you already have with what you'll get after the rollover.

What Should You Compare Before Moving Your 401(k)?

Keep the comparison simple:

• Investments: Does the new account give you the investments you want?
• Costs: How do the total fees compare?
• Withdrawals: How easy will it be to get money when you need it?
• Simplicity: Will the move make your financial life easier?
• What you'll give up: Will moving the account eliminate an option you may want later?

You don't need dozens of reasons to move an account. You need a few good reasons that actually matter to your retirement.

What About Taxes?

Withdrawals of pretax money from a traditional 401(k) are generally included in your taxable income. A direct rollover of eligible pretax money into a traditional IRA generally allows the money to remain tax deferred.

The important distinction is that moving retirement money directly from one eligible retirement account to another is different from withdrawing the money for yourself.

Before taking a large distribution, understand how it will affect your taxes.

What Should You Do Before Your Last Day of Work?

You don't need to make your final 401(k) decision before you retire, but you should understand how your plan works.

Call your 401(k) provider and ask:

• Can I leave my money in the plan after I retire?
• What fees will I pay?
• Can I take partial withdrawals?
• Can I establish recurring withdrawals?
• Can I change or stop those withdrawals?
• Can taxes be withheld automatically?
• Is there anything I will give up if I move the money?
• How do I complete a direct rollover if I decide to move it?

Write down the answers. You'll have a much easier time comparing your choices when you know exactly how your current plan works.

401(k) After Retirement FAQ

Do I have to roll over my 401(k) when I retire?

No. If your former employer's plan allows you to keep the account, you don't have to move it simply because you've retired.

Can I take money from my 401(k) after I retire?

Yes, subject to your plan's distribution rules. Pretax withdrawals will generally be included in your taxable income.

Can I roll my 401(k) into an IRA?

Yes, eligible 401(k) money can generally be rolled into an IRA. Compare the investments, costs, withdrawal options, and features before moving the account.

Can I leave my 401(k) where it is and decide later?

Yes, if your plan allows you to keep the account after leaving your employer. You can revisit the decision as your retirement needs change.

Final Thoughts

Your 401(k) doesn't need a new home simply because you've retired.

Start with what you need the money to do. If you won't touch it for years, investments, costs, and simplicity may be your priorities. If you'll use it for retirement income, withdrawal flexibility will become much more important.

Those priorities will change as you move through retirement. Understand what your current 401(k) gives you, what your other choices offer, and what you will give up by moving the money.

Then make the decision that works with the retirement you're actually planning to live.

Disclosure

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; however, no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative purposes only.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax professional.

Retirement plan rules, tax laws, distribution requirements, and required minimum distribution rules can change over time. Before making rollover or distribution decisions, verify current rules with your retirement plan administrator, the IRS, or a qualified professional.