Switching Jobs in 2026? 2 Things Not to Do With Your 401(k).

A lot of people wait until the start of a new year to move from one job to another. After all, it can be tough to make a switch in the midst of the holidays. And for many employers, budgets for new hires don't open up until January anyway.

If you're making a job switch soon, you may be wondering what to do with the 401(k) plan you have. The truth is that you have a number of options for that 401(k). But here are two things you generally don't want to do with that retirement plan.

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1. Leave your money where it is

Depending on your 401(k) balance, you may have the option to leave your money in your former employer's retirement plan, even if you're no longer working there. This might seem like the simplest move. But it could end up being a problem.

For one thing, if you leave your 401(k) in your old employer's plan, you risk forgetting about it over time. Also, it may be hard to manage your 401(k) once you're no longer an employee. And you may not be well-informed about changes to that 401(k) plan once you're not on the company's payroll.

2. Cash out your savings

You could technically cash out your 401(k) when you leave a job. But doing so could be a very costly mistake.

If you cash out a 401(k), that sum will be taxable unless it's in a Roth account. But also, if you're not yet 59 and 1/2, you'll be hit with an early withdrawal penalty that costs you 10% of the sum you take with you.

What to do with your 401(k) instead

Now that you know what not to do with your 401(k) when switching jobs, let's discuss a couple of viable options that could make more sense.

First, if your new employer offers a 401(k) that you're eligible for right away, you could roll your balance directly into that account. You could also open an IRA if you don't have access to a 401(k) at your new job.

In many cases, your IRA can be a direct rollover, where the money goes straight from your old 401(k) into your new account. But if that's not an option, you can do an indirect rollover.

In that case, what'll happen is that you'll get a check for the amount of your old 401(k) balance. You'll then have 60 days to put that money into a new retirement plan to avoid taxes and a penalty.

Switching jobs could mean learning a lot of new policies and systems and adjusting to a whole new routine. But don't let your 401(k) plan fall by the wayside in the course of changing jobs. And don't assume that leaving it where it is or cashing it out is your best move. Either option is one you may end up sorely regretting.

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