Rollovers and Changing Jobs
What you can do with a workplace retirement plan when you leave a job, how direct and indirect rollovers differ, the 60-day and once-a-year rules, and why cashing out costs so much.
The short version
When you leave a job, you can usually leave your money in the old plan, move it into your new employer's plan, roll it into an IRA, or cash it out. A direct rollover, where the money moves straight from one account to another, avoids tax withholding. If the plan pays you instead, it must withhold 20%, and you have 60 days to deposit the full amount, including the part withheld, or the rest becomes taxable. Cashing out is generally taxable and can add a 10% early-withdrawal tax if you're under 59½. Only one IRA-to-IRA rollover is allowed in any 12 months, but direct transfers aren't limited.
By the end of this lesson, you'll be able to
- List the four main options for a workplace plan after leaving a job
- Explain the difference between a direct and an indirect rollover, including the 20% withholding and 60-day rules
- Describe what cashing out costs and what happens to an outstanding plan loan
Why this matters
Every job change leaves a decision behind: what to do with the retirement account at the old employer. Made carefully, it's a paperwork task. Made carelessly, it can turn years of tax-deferred saving into a tax bill, with an extra 10% on top.
Four options
When you leave a job, you generally have four choices for the money in your workplace plan:1
| Option | What happens | Worth knowing |
|---|---|---|
| Leave it in the old plan | The money stays invested in the old plan, if the plan allows it. | You keep the old plan's investment menu and fees, and have one more account to keep track of. |
| Move it to the new employer's plan | A Rollover. Moving money from one retirement account to another, such as from an old employer's 401(k) to an IRA, without it being taxed as a withdrawal. Glossary into the new plan, if it accepts them. | Fewer accounts. You get the new plan's menu and fees. |
| Roll it into an IRA | The money moves into an IRA you choose. | The choice of investments depends on the IRA provider you pick. Some plan rules, such as the age-55 exception below, don't apply to IRAs. |
| Cash it out | The plan pays you the balance. | Generally taxable, and an extra 10% tax may apply if you're under 59½. |
Ask the new plan's administrator whether it accepts rollovers and which kinds of contributions it takes.2 Workplace plans carry asset-based fees and may have others, so compare costs either way.1
One detail matters if you leave a job in or after the year you turn 55. Withdrawals from that employer's plan aren't subject to the 10% early-withdrawal tax, but the exception doesn't apply to IRAs.3 Rolling the money into an IRA would give that up.
The rest of this lesson is for members
Still to come in this lesson: Direct and indirect rollovers, Loans and unvested money, the key takeaways, and 2 quiz questions with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- Employer Matches and VestingPart 6: Strategy, Behavior, Accounts, and Taxes
- Early Withdrawals and Required Minimum DistributionsPart 6: Strategy, Behavior, Accounts, and Taxes
- IRAsPart 6: Strategy, Behavior, Accounts, and Taxes
Notes and sources
- FINRA. Retirement Accounts. Checked 2026-10-06. Back to text
- Internal Revenue Service. Rollovers of retirement plan and IRA distributions. Checked 2026-10-06. Back to text
- Internal Revenue Service. Retirement topics: Exceptions to tax on early distributions. Checked 2026-09-26. Back to text
- Internal Revenue Service. Retirement topics: Loans. Checked 2026-10-06.
- Internal Revenue Service. Retirement topics: Vesting. Checked 2026-10-06.