The average American changes jobs more than a dozen times in a working life.
Each time, there is a decision to make about the retirement account left behind — and it is usually made in the middle of a stressful week, alongside notice periods, handovers and a new role starting.
Which is how a surprising amount of retirement money gets lost, or spent.
Department of Labor figures suggest only around a quarter of workers leaving a job roll over at least some of their retirement money. Some of the rest sensibly leave it where it is. Others do not.
Your Four Options
Three are reasonable. One is expensive.
Leave it in the old employer’s plan. Usually permitted if the balance is above a certain size.
Roll it into your new employer’s plan. If they accept transfers, which most do.
Roll it into an IRA. An account you open yourself at a brokerage.
Cash it out. Take the money now.
The first three keep the money working and carry no tax consequence. The fourth is the one worth understanding properly, because it looks reasonable in the moment and rarely is.
What Cashing Out Actually Costs
Take someone aged 35 with $30,000 in a former employer’s plan, in the 22 percent federal bracket.
Federal income tax on the withdrawal: roughly $6,600.
Early withdrawal penalty of 10 percent for being under 59½: $3,000.
State income tax, where applicable — at 5 percent, another $1,500.
They receive around $18,900 of a $30,000 balance. Roughly a third has gone.
That is the visible cost. The larger one is invisible.
Left alone at a 7 percent annual return, that $30,000 would be worth approximately $228,000 after thirty years.
So the real price of taking $18,900 today is around $228,000 at retirement. Occasionally a genuine emergency justifies that. Most cash-outs are not emergencies — they are a balance that felt too small to bother moving.
One additional trap: if the account is a SIMPLE IRA and you are within your first two years in the plan, the early withdrawal penalty rises to 25 percent rather than 10.
The Rollover Mistake That Costs People Money
There are two ways to move retirement money, and the difference matters enormously.
Direct rollover — do this one
The money moves from the old plan to the new account without passing through your hands. Sometimes called a trustee-to-trustee transfer.
Nothing is withheld. Nothing is reportable as income. Ask the old plan administrator to send it directly to the receiving institution.
Indirect rollover — avoid this
The plan sends the money to you, and you have 60 days to deposit it into another retirement account.
Two things go wrong.
First, the plan is generally required to withhold 20 percent for federal tax. On a $30,000 balance, you receive $24,000.
Second, to complete the rollover you must deposit the full $30,000 within 60 days — including the $6,000 you never received. You have to make up the difference from your own money and reclaim the withheld amount when you file.
If you only deposit the $24,000 you received, the missing $6,000 is treated as a distribution: taxable, and subject to the 10 percent penalty if you are under 59½.
Miss the 60 days entirely and the whole balance becomes a taxable distribution.
Ask specifically for a direct rollover. That phrase, on the phone or the form, avoids all of it.
Which of the Three Good Options
Leave it where it is
Consider when: the old plan has low fees and good fund choices, or you are between jobs and not yet sure where you are going.
Against: another account to keep track of. Accounts left behind at former employers are how people lose money entirely — more on that below.
Roll into the new employer’s plan
Consider when: the new plan has low fees, and you value having everything in one place.
One genuine advantage: workplace plans generally allow you to delay required minimum distributions if you are still working past the usual age, which IRAs do not.
Against: workplace plans offer a limited fund menu, and fees vary considerably between employers.
Roll into an IRA
Consider when: you want wider investment choice and lower fees than a workplace plan typically offers. This is the right answer for most people most of the time.
Against: one thing worth knowing. If you might later want to do a backdoor Roth contribution, having pre-tax money in a traditional IRA complicates the tax treatment. If that applies to you, rolling into the new employer’s plan instead can be cleaner. Worth a conversation with an accountant if you are a higher earner.
The wider fund choice matters more than it sounds, for the reasons covered in index funds explained — fees compound against you over decades.
Check Your Vesting Before You Leave
Money you contributed from your own pay is always yours. Employer contributions may not be yet.
Many plans require a period of service before their contributions become yours — commonly three-year cliff vesting or six-year graded vesting for defined contribution plans.
Which means leaving shortly before a vesting date can forfeit money you had counted as part of your balance.
If you are considering a move and are close to a milestone, the timing is worth factoring in. Check your summary plan description, and see which retirement accounts to fill first for how vesting works.
The Accounts People Lose
This is a real and growing problem.
Small balances left in former employers’ plans get forgotten. Employers merge, get acquired, or change plan administrators. Statements go to old addresses. After several job changes across a decade, people genuinely do not know where their money is.
Plans are also permitted to move small balances out automatically after you leave — often into an IRA chosen by the plan, sometimes invested very conservatively, sometimes with fees that erode a modest balance over time.
Three things prevent this:
Keep your contact details current with any plan holding your money, including after you leave.
Consolidate when it is straightforward. Fewer accounts means fewer to lose.
Keep a written record of every retirement account you have ever had, with the provider and approximate balance. A single note somewhere permanent.
If you suspect you have lost track of an old account, the Department of Labor’s Employee Benefits Security Administration can help, and the Pension Benefit Guaranty Corporation maintains a search for unclaimed retirement benefits.
While You Are In There
Two housekeeping items worth doing at the same time.
Check your beneficiary designations. Retirement accounts pass to whoever is named on the account, regardless of what your will says. An old designation naming an ex-partner will be honored. We covered why this catches people out in how much life insurance do you need.
Secure the account. Retirement accounts are a target for fraud, and balances are large. Use a strong unique password, enable two-factor authentication, check the account periodically rather than never, and avoid logging in over public Wi-Fi.
A Note on Borrowing
Some plans allow you to borrow from your balance, often at attractive rates. It is generally worth avoiding.
The borrowed money stops compounding while it is out. And if you leave your job with a loan outstanding, repayment terms typically accelerate — an unpaid balance can be treated as a distribution, triggering tax and penalty at exactly the moment your income has stopped.
The Department of Labor’s guidance is direct on this: budget for the money or find another loan option first.
What to Do, In Order
Before you resign: check your vesting schedule.
In your final week: get your plan administrator’s contact details and your account number. This is far easier while you still work there.
Within a month of leaving: decide where the money goes. Not urgent, but it is the sort of decision that quietly never gets made.
When you move it: ask explicitly for a direct rollover.
Once it lands: check that it is actually invested. Rolled-over money sometimes sits in cash until you choose funds, and a balance sitting in cash for years is a genuinely expensive oversight given what inflation does — see what inflation does to your money.
The Bottom Line
Leave it, move it to the new plan, or move it to an IRA. All three are fine.
Do not cash it out. A third disappears immediately and the rest costs you decades of compounding.
Always ask for a direct rollover. The indirect version has a 60-day deadline and 20 percent withholding that catches people out.
Check vesting before you resign, keep a record of every account you have ever had, and confirm the money is actually invested once it arrives.
This article is general information, not personalized financial or tax advice. Plan rules, penalties and thresholds vary and change — check with your plan administrator and IRS.gov, or consult a qualified professional.
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