The Short Answer

1. Changing Jobs Does Not Automatically Mean You Have to Move the 401(k)

A 401(k) does not disappear when employment ends.

Depending on the former employer’s plan rules and the account balance, leaving the money in the old plan may remain an option.

That means changing jobs does not necessarily create an immediate deadline to choose between a new employer plan and an IRA.

Doing nothing for now can be reasonable when:

• the old plan has good investment options;
• fees are competitive;
• the account is easy to manage; or
• you are not ready to decide where the money should go next.

Small balances are an important exception.

Current federal law permits a plan to provide for an immediate distribution without the participant’s consent when the present value of the vested benefit does not exceed $7,000.

If a mandatory distribution is more than $1,000 and the participant does not affirmatively elect another available option, the plan generally must transfer the amount by direct rollover to an IRA selected by the plan.

See IRS Notice 2026-13.

The important distinction is:

Leaving the account where it is is not the same as forgetting about it.

You should still know how it is invested, what fees apply, who the beneficiaries are, and how to access the account.

2. Option One: Leave the Money in the Old 401(k)

Keeping an old 401(k) can be perfectly reasonable.

The former plan may have low-cost investment options or other features you prefer.

Leaving the money there also avoids moving it simply for the sake of moving it.

The downside is practical.

Another account.

Another login.

Another investment allocation to monitor.

Another beneficiary designation to keep current.

For someone like Evan, consolidation has real value.

But:

Fewer accounts does not automatically mean a better retirement strategy.

Convenience is one factor.

It is not the only one.

3. Option Two: Roll It Into the New Employer’s 401(k)

If the new employer’s plan accepts incoming rollovers, moving the old balance into the new 401(k) can simplify retirement savings.

Instead of maintaining two workplace accounts, you may have one place to monitor investments and allocations.

But a new employer plan is not required to accept rollover contributions.

You need to check the plan before assuming this option is available.

See IRS — Rollovers of Retirement Plan and IRA Distributions.

If the new plan does accept rollovers, compare the two plans before moving the money.

Look at:

• investment options;
• fees;
• plan restrictions;
• withdrawal and distribution rules; and
• whether the old plan has features you would lose.

“One account instead of two” can be useful.

It is not, by itself, a tax strategy.

4. Option Three: Roll It Into a Traditional IRA

Another common choice is a rollover from the old 401(k) to a Traditional IRA.

An IRA can offer a broader range of investment choices and more control over the financial institution holding the account.

For eligible pretax 401(k) money, a rollover to a Traditional IRA generally preserves tax deferral.

The rollover itself generally does not create current taxable income simply because the money moved from a 401(k) to an IRA.

See IRC §402 and IRS Publication 590-A.

That can make the IRA look like the obvious choice.

It is not always obvious.

An IRA and a 401(k) are different account structures.

And moving pretax money into a Traditional IRA can affect future tax planning even when the rollover itself is tax-deferred.

5. A Rollover IRA Can Affect Future Roth Planning

This is one of the easier rollover consequences to miss.

Suppose a taxpayer later wants to make a nondeductible Traditional IRA contribution and convert that amount to a Roth IRA.

That strategy is often called a backdoor Roth IRA.

The tax calculation generally does not isolate one particular Traditional IRA.

For this aggregation rule, Traditional IRAs include traditional SEP and SIMPLE IRAs. Roth IRAs are not included in the Traditional IRA aggregation.

Form 8606 generally uses the total value of the taxpayer’s Traditional IRAs as of December 31, together with the other amounts required by the form.

See IRS — Instructions for Form 8606.

Assume these simplified facts:

Pretax rollover IRA: $100,000

2026 nondeductible IRA contribution: $7,500

Roth conversion: $7,500

The taxpayer generally cannot simply say:

“I converted the $7,500 after-tax contribution, so the conversion is tax-free.”

The IRA basis rules allocate the after-tax basis across the aggregated Traditional IRA balance.

Under these simplified facts, only a relatively small portion of the $7,500 conversion would be nontaxable. Most of the conversion would generally be taxable.

The regular IRA contribution limit for 2026 is $7,500 for an individual under age 50.

By contrast, pretax assets that remain inside a 401(k) generally are not part of the Traditional IRA balance used in this calculation.

Timing matters too.

If the 401(k) is rolled into a Traditional IRA before the relevant December 31 measurement date, that rollover IRA becomes part of the aggregated IRA balance.

This does not mean:

Never roll a 401(k) into an IRA.

It means:

A tax-deferred rollover today can affect tax-planning flexibility later.

That can matter for a taxpayer who expects to use nondeductible IRA contributions and Roth conversions in future years.

6. Direct Rollover vs. Having the Distribution Paid to You

How the money moves matters.

Direct Rollover

With a direct rollover, the old plan sends the eligible retirement money directly to another eligible retirement plan or IRA.

For eligible pretax amounts, the rollover generally does not create current taxable income.

The mandatory 20% federal withholding that generally applies when an eligible rollover distribution is paid directly to the participant does not apply to a direct rollover.

See IRC §3405(c) and IRS — Rollovers of Retirement Plan and IRA Distributions.

That is why a direct rollover is usually the cleaner mechanism when the goal is simply to move retirement money from one eligible account to another.

60-Day Rollover

Another method is to have an eligible rollover distribution paid to you and then deposit the amount into another eligible retirement plan or IRA.

You generally have 60 days from the date you receive the distribution to complete the rollover.

Exceptions or waiver procedures may apply in certain circumstances.

But there is an important cash-flow issue.

A taxable eligible rollover distribution from an employer retirement plan that is paid directly to you is generally subject to 20% mandatory federal withholding, even when you intend to roll the entire amount over.

Example:

Gross distribution: $100,000

Federal tax withheld: $20,000

Cash received: $80,000

If you want to complete a full $100,000 rollover, you generally need to replace the withheld $20,000 from other funds and timely roll over the full $100,000.

If you roll over only the $80,000 received, the $20,000 not rolled over generally becomes taxable and may also be subject to the additional tax on early distributions if applicable.

That is one reason a direct rollover is usually simpler when the goal is to keep the entire balance inside retirement accounts.

7. A Rollover to a Roth IRA Is Different

A rollover from a pretax 401(k) to a Traditional IRA and a rollover from a pretax 401(k) to a Roth IRA are not the same tax event.

If previously untaxed 401(k) money is moved to a Roth IRA, the pretax amount generally becomes taxable income in the year of the rollover.

In substance, the taxpayer is converting pretax retirement money into Roth money.

That does not automatically make a Roth conversion bad.

A deliberate Roth conversion can be part of long-term tax planning.

But:

Moving retirement money and converting pretax money to Roth are different decisions.

A taxpayer should not assume that every retirement-account-to-retirement-account transfer is tax-free.

8. What If the 401(k) Contains Roth or After-Tax Money?

Not every 401(k) balance is entirely pretax.

A plan can contain:

• pretax contributions;
• designated Roth 401(k) amounts; and
• in some plans, after-tax non-Roth contributions.

Those amounts can have different rollover destinations and tax consequences.

When an account contains both pretax and after-tax money, special allocation rules apply.

Under current rollover guidance, amounts from the same distribution that are sent to multiple destinations can be allocated so that, for example:

Pretax portion → Traditional IRA or another eligible pretax plan

After-tax portion → Roth IRA

See IRS — Rollovers of After-Tax Contributions in Retirement Plans.

But this does not mean a participant can simply identify a portion of the account as “after-tax money” and withdraw only that amount without considering the applicable allocation rules.

Before initiating a rollover, confirm what is actually inside the account and how the distribution will be allocated.

The total balance alone does not tell you the tax character of every dollar.

9. What Happens If You Cash Out Instead?

Cashing out is different from rolling over.

If previously untaxed 401(k) money is distributed and not rolled over, the taxable amount generally becomes current taxable income.

If the taxpayer is under age 59½, an additional 10% federal tax may also apply unless an exception is available.

That can create two immediate consequences:

Current income tax.

Potential additional early-distribution tax.

It also removes the money from the retirement account.

The fact that cashing out is available does not make it the default choice after changing jobs.

10. So What About Evan?

Evan’s old 401(k) did not become a problem when he changed jobs.

It stayed invested.

About a year later, he finally looked at it again.

His choices are ordinary.

He can see whether leaving it in the old plan still works for him.

He can check whether his current employer’s plan accepts a rollover.

He can consider a Traditional IRA.

If he eventually decides to move eligible pretax money, a direct rollover can generally preserve tax deferral without the mandatory 20% federal withholding that applies when an eligible rollover distribution is paid directly to him.

But the Episode’s real question is not:

How do I move a 401(k)?

It is:

Where do I want this money to live for the next twenty or thirty years?

Fees matter.

Investments matter.

Convenience matters.

Future tax planning can matter too.

The cleanest-looking account structure is not automatically the best long-term choice.

California Note

California generally recognizes qualifying rollover treatment, but California conformity and exception rules should be checked for the specific distribution.

For a qualifying rollover, the basic distinction remains the same:

Moving retirement money to another qualifying retirement arrangement is different from taking a taxable withdrawal.

For an early taxable distribution, California generally imposes an additional 2.5% tax unless an exception applies.

California’s exceptions do not always match the federal rules.

A different 6% California additional-tax rate can apply to certain SIMPLE IRA distributions received within the first two years of participation. That rule is outside the ordinary 401(k) fact pattern discussed in this guide.

As of this review, the most recent Form FTB 3805P instructions available are for 2025. The instructions applicable to the actual filing year should be checked when preparing a return.

Common Mistakes

“I left the company, so I have to move the 401(k).”

Not necessarily. Depending on the plan and the account balance, leaving the money in the former employer’s plan may remain an option. Small balances can be subject to the plan’s mandatory-distribution rules.

“Rolling it to an IRA is always better.”

No. An IRA may provide more investment flexibility, but fees, investment choices, plan rules, convenience, and future tax planning can change the comparison.

“If the rollover is tax-free, the destination does not matter for future taxes.”

Too broad. A pretax rollover into a Traditional IRA can affect future IRA basis and Roth-conversion calculations.

“A rollover to any IRA is tax-free.”

Not necessarily. Moving eligible pretax money to a Traditional IRA generally preserves tax deferral. Moving previously untaxed money to a Roth IRA generally creates taxable income.

“They withheld 20%, so I only need to roll over the check I received.”

Not if the goal is a full rollover. When an eligible employer-plan distribution is paid directly to you, mandatory withholding can require you to use other funds to replace the withheld amount in order to roll over the full gross distribution.

“I can just take the after-tax money out of my mixed 401(k) balance.”

Not that simply. Special allocation rules apply when a plan account contains both pretax and after-tax amounts, although the rules can allow those amounts to be directed to different rollover destinations.

“Direct rollover means the transaction never gets reported.”

Not necessarily. A rollover can still be reportable even when it does not create current taxable income.

The Key Distinction

The easiest way to think about an old 401(k) is to separate three questions.

1. Do You Have to Move It?

Not necessarily.

Depending on the plan and the account balance, leaving the money where it is may remain an option.

Small balances may be subject to mandatory-distribution rules.

2. Can You Move Eligible Pretax Money Without Current Tax?

Generally, yes.

A qualifying rollover to another eligible pretax retirement arrangement can generally preserve tax deferral.

3. Where Should the Money Go?

Tax law does not answer that question by itself.

Old 401(k).

New 401(k).

Traditional IRA.

Potential Roth conversion.

Each can produce a different combination of investment choices, fees, convenience, plan rules, and future tax-planning flexibility.

A tax-deferred rollover tells you how the money can move.

It does not tell you where it belongs.

Reference

Federal Rollover Rules

IRC §402 — Taxability of Beneficiary of Employees’ Trust
Provides the federal framework for eligible rollover distributions, eligible retirement plans, and rollover treatment.
26 U.S.C. §402 — Taxability of Beneficiary of Employees’ Trust

IRS — Rollovers of Retirement Plan and IRA Distributions
Explains direct rollovers, 60-day rollovers, mandatory withholding, eligible rollover distributions, and receiving-plan rules.
IRS — Rollovers of Retirement Plan and IRA Distributions

IRS — Retirement Topics: Termination of Employment
Summarizes the main retirement-plan choices after leaving an employer.
IRS — Retirement Topics: Termination of Employment

Mandatory Small-Balance Distributions

IRC §411(a)(11) — Restrictions on Certain Mandatory Distributions
Provides the participant-consent rule relevant to certain mandatory plan distributions and the current $7,000 threshold.
26 U.S.C. §411 — Minimum Vesting Standards

IRS Notice 2026-13 — Safe Harbor Explanations for Eligible Rollover Distributions
Reflects current rollover guidance, including the $7,000 mandatory-distribution threshold and automatic IRA rollover rule for certain distributions above $1,000.
IRS — Notice 2026-13

Withholding & Early Distributions

IRC §3405(c) — Eligible Rollover Distributions
Provides the federal withholding rules applicable to eligible rollover distributions, including the direct-rollover exception to mandatory withholding.
26 U.S.C. §3405 — Collection of Income Tax at Source on Certain Pensions

IRS Topic No. 413 — Rollovers From Retirement Plans
Explains direct rollovers, the general 60-day rollover period, mandatory withholding, and the potential additional tax on amounts not rolled over.
IRS Topic No. 413 — Rollovers From Retirement Plans

IRA & Roth Planning

IRC §408 — Individual Retirement Accounts
Provides the federal statutory framework for IRAs, IRA distributions, and rollover contributions.
26 U.S.C. §408 — Individual Retirement Accounts

IRS Publication 590-A — Contributions to Individual Retirement Arrangements (IRAs)
Explains rollovers from employer plans to Traditional and Roth IRAs and related IRA rules.
IRS — Publication 590-A

IRS — Instructions for Form 8606
Provides the IRA basis and aggregation rules relevant to nondeductible IRA contributions and Roth conversions, including the December 31 Traditional IRA value used in the calculation.
IRS — Instructions for Form 8606

IRS — 2026 Retirement Plan Contribution Limits
Provides the 2026 IRA contribution limit used in the example.
IRS — 2026 Retirement Plan Contribution Limits

IRS — Rollovers of After-Tax Contributions in Retirement Plans
Explains the allocation of pretax and after-tax amounts when a retirement-plan distribution is sent to multiple rollover destinations.
IRS — Rollovers of After-Tax Contributions in Retirement Plans

California

California FTB — Early Distributions
Provides California’s additional-tax rules for certain early retirement distributions, including the general 2.5% rate and the 6% rate for certain early SIMPLE IRA distributions.
California FTB — Early Distributions

California FTB — Form 3805P Instructions
Explains California reporting and additional-tax rules for certain retirement-plan and IRA distributions. The most recent instructions available as of this review are for 2025.
California FTB — 2025 Form 3805P Instructions

See This Rule in the Story

Episode 21 — Still There

About a year after changing jobs, Evan realizes his old 401(k) is still exactly where he left it.

The account did not require an immediate decision, so for a year he made none.

When he finally looks at the choices, moving the money turns out to be easier than deciding where it should live.

That is the decision behind this guide.

READ EPISODE 21 →