What Should You Do With an Old 401(k)?
Knoxville Financial Q&A Episode 14 |What Should You Do With an Old 401(k)?
September 21, 2026
Changing jobs or retiring can leave you with an important question: What should you do with an old 401(k)?
In this episode of the Knoxville Financial Q&A Show, Paul Ragone and Brian Duncan discuss four options you may have: leaving the money in your former employer's plan, moving it to a new employer's 401(k), rolling it into an IRA, or taking the money out.
Each option comes with different considerations. Investment choices, fees, taxes, creditor protection, 401(k) loans, Roth and after-tax contributions, employer stock, and your overall retirement plan can all play a role in determining what makes sense.
Most importantly, an old 401(k) decision shouldn't be made in isolation. The right question isn't simply “Where should I move this money?” It's “How does this money fit into my overall retirement plan?”
At Integrity Wealth Services, we believe this should be a planning decision—not a sales decision. Sometimes moving an old 401(k) may make sense. Sometimes leaving it where it is may be appropriate. The goal is to understand the advantages, disadvantages, costs, and planning implications before making the decision that's right for your individual situation.
Watch Episode 9 of the Knoxville Financial Q&A Show above for a discussion of five common retirement mistakes and the planning considerations that can help you make more informed decisions before and during retirement.
Transcript
What Should You Do With an Old 401(k)?
Do you have an old 401(k) from a previous employer? Not sure what to do about it? Well, that's what we're going to talk about today.
So, I went to ChatGPT and my prompt was, “How much money is sitting in old 401(k) plans?” The reply: about $2.1 trillion.
Trillion doesn't surprise me. That's sitting in old 401(k) plans where the employee no longer works for their former company.
It gets even better, though. There are about 31.9 million of those dormant accounts with no active employee attached to them. So that's basically 32 million old 401(k)s just sitting out there.
It's unbelievable. That number surprised me. I mean, it's not shocking, but it still kind of is because you normally don't hear the data behind it.
But what's the easiest thing to do when it comes to working out, money, eating right? Nothing. The answer is nothing, right?
You basically have four choices. You can just leave it. If you work for a new employer and their plan allows you to roll it into their plan, you can do that. You can roll it to an IRA, or you can withdraw it.
Yeah. Cash it out and take it. Those are your four options.
So, we'll just go down those options one by one.
Option 1: Leave It in the Old Employer's Plan
There's not really anything wrong with that. This goes back to what I just said. What's the easiest thing to do? Nothing. I think most people will do that just by default.
Yeah.
So, I almost would make that a non-option because I've always said to people, if you left, were fired, quit—whatever happened at your job—did you take your belongings when you left? Did you clean out your desk drawer? Did you take your coat or your jacket hanging on the hook?
Yeah.
Why didn't you take your money?
One of the things that could potentially be a problem if you just leave it there is that most 401(k) plans now are just purely age-based funds.
For sure.
And so that doesn't give you the best investment options that are available if you had done something else with it, like move it to an IRA, which is number three, which we'll get to.
Well, even if they had good fund choices, most people aren't seeking any assistance when it comes to picking them. So even if they had those available to them, they're usually not picking them anyway. By default, they go straight to the age-based funds.
Like I mentioned earlier, there are 32 million accounts out there that have no guidance, essentially. There are a lot of people who don't really go in and look at their 401(k) plans. What options are available? And even if they do understand the options that are available, do they actually reallocate based on their age, or do they just pick an age-based fund?
I'd say a lot of people just think because it's a work plan, they don't have a resource. They don't have anybody to talk to. They don't have anybody who will answer. Most of the companies try to offer that, but usually they'll shut them down if they don't have a large enough account balance.
Well, that brings up another point. What we're seeing now is a consolidation of 401(k) plans into one or two or three big companies. If you don't know anything about investing and you've just worked your whole entire life and poured money into your 401(k) plan, who's there to explain what your options are and the allocations?
Right. And something else to think about when you leave your 401(k) there: the employer has almost complete control over everything. They could change the plan sponsor. So they could go from one company to the next.
That could also, by default, potentially shift you into a cash position if you make no allocation. And so it can jump from one company to the next, next company to the next, and just keep on moving down the line. There could become a point in there where you become divested, because if the funds don't translate and they don't have you there and you're not an active employee, you don't really get to attend the meetings to say, “Hey, we're changing companies. Which fund would you pick?”
So, yeah, that becomes another thing to think about, too.
And we haven't even gotten into the fee side of things, which in some cases is really hard to find in your 401(k) plan. Most are reasonable just because the plans are so big, but there are underlying fees, like the actual funds that you're investing in.
In most cases, they're institutional-based, so the fees are pretty low. But there are some that have retail-based funds inside of them that can be really expensive, which you don't know about because it's really not shown anywhere.
And that's excluding the administrative costs that are usually passed on because you're not an employee there.
Yes. Usually, if the company is generous enough to provide and pay for those administrative costs, it only applies while you're employed. It's a benefit they're providing to you while you're there. When you're not, they don't need to provide that benefit anymore.
Pay up.
Yep.
Option 2: Move It to Your New Employer's 401(k)
All right. So, if we've said that option number one, which was leave your money behind, is probably not what you should do, what are the steps beyond that?
Option two would be to move your money from your old 401(k) to the new 401(k), assuming you got a job that has a new 401(k) and assuming that the plan allows a transfer into it. Sometimes they don't.
One of the good things about doing something like that could be, instead of having an old 401(k) out there and a new 401(k), you have a consolidated 401(k).
Sure. I feel like people should do that no matter what. I mean, the answer to leave your money there should just be, “Don't do it.”
I agree. A lot of our clients don't seem to actually monitor their old 401(k)s. They just know it's out there.
They don't seem to monitor their current 401(k).
That's true.
Much less their old 401(k). Especially the old 401(k)s, depending on how old they are. Target-date funds weren't really an option back then. They're in every 401(k) plan now, but if you have an old 401(k) out there and you made an allocation based on your age back then that was maybe super aggressive, and it's still in that allocation, that could be a big problem.
Or the exact opposite. Maybe it's too conservative because the market wasn't great at the time you made your investment choices.
Your 401(k), in general, should hopefully have matching. So if it's a one-to-one match up to 3%, a one-to-one up to 6%, or maybe it's a half-percent—I mean, that's a 50% to 100% rate of return as long as you're capturing that match. You won't find that return anywhere else.
So should you do it and make sure that you have a decent amount of money there? Yes.
I think that's the other thing that a lot of people don't realize, too. A lot of these companies, if you have a small balance, if you don't move it from your previous 401(k) and roll it over and keep that consolidated 401(k) rolling, if you leave that job and go to the next job, they could automatically either just shift the money to cash or even send the money out. They may just say, “It's not enough money there. We're going to just send it out.”
Yep. And then most people go, “Now what?” Sometimes they'll take that tax hit and the early withdrawal penalty because they didn't know.
And the early withdrawal penalty is 10%.
Yep.
And all of a sudden you're getting a check, you're getting taxed on it, and not only that, you're getting a 10% penalty on top of that.
Plus 10.
Yep.
Option 3: Roll It Into an IRA
So that brings us to option three, which is roll it over to an IRA.
Yeah. I think it's probably what most people should do. I would try to explain it like having a checking account. If you had a shared account with your job, which is what I would call that, have your own account. Have your own checking account. Have an account that you control. And thank you for helping me while I had it, but now I'm going to take it from here.
I would always encourage people to just have an account that they control because they get way more investment options.
Yes, it's more expensive, but I don't think I know anybody that would hop on the cheapest overseas flight ever.
Yeah, I agree. And it's not always more expensive. In some cases, we use institutional-based funds as well.
Yeah.
No-load funds. So, if you rolled it over to an IRA, you can do it on your own at Schwab or any place like that. Just open up an IRA, roll it over, pick your own investment choices, and be on your merry way.
But if you rolled it over to us, we're building a portfolio with that money as part of an overall financial plan instead of just rolling it over into an account because you don't want it in the old 401(k) sitting out there unmanaged.
Before you jump into rolling it over into an IRA, though, there are certain provisions that a 401(k) plan does allow for. For example, it's creditor-proof.
Right. Traditional IRAs, too, but only up to a certain limit.
Yeah. So if you file bankruptcy or something like that, your 401(k) is pretty well protected, whereas if you rolled it to an IRA, you don't have that same protection. You have some, but not the same.
The other thing about 401(k)s is it's generally easier to borrow against.
Yeah. But there are some things to think about there. I've had this happen with a couple of clients. They borrowed against their 401(k), whether it was for debt consolidation, maybe paying off a credit card, buying their kid a car, or any number of variations.
But then something comes along, and sometimes it can be forced. Sometimes it could be the company shifting 401(k) companies. I had a client who got let go. It was kind of a BS reason, but besides the point. The 401(k) was forcing him out, and he either had to pay off that loan with money out of his checking account to free it up, or he had to take it as income plus the 10% early withdrawal penalty.
So just because you have the ability to borrow from it, I don't necessarily consider that a positive. I mean, it is a pro, but Tennessee is an at-will state. If they want to fire you for any reason, they can. And if that 401(k) company says, “By the way, what are you going to do about this loan that you owe us?” you have to figure that out, and quickly.
Yeah. I think the biggest takeaway from that would be if somewhere in your mind things are going downhill and you're heading on a financial path of destruction and you realize it, and maybe bankruptcy is your only option, you might just want to leave the 401(k) where it's at until after.
Just because you have options to do it doesn't necessarily mean it's the right thing to do.
But this also goes back to finding somebody and talking to them. That's what we're here for. People make bad moves, and sometimes it's not even intentional. They just don't know.
Yep.
I'm Paul. That's Brian. We're here and you can talk to us.
But anyway, that is something that should be a planning decision, not a sales decision.
Yeah. I think almost all of this comes down to planning.
Option 4: Take the Money Out
Option number four: take the money out.
Don't do it.
Don't do it.
Unless it's an absolute financial emergency.
Yeah. If your back's against the wall and you have no other options, obviously be glad you have the money.
Especially if you're below 59½.
Yeah. Even if you're in a pretty conservative effective tax rate and you fall under 20%—let's say you're at a 13% or 14% effective tax rate—with a 10% penalty, 25 cents of the dollar is gone.
And that's the other thing I think people don't realize when they take it out. They're like, “Well, it's just $10,000.”
You're losing $2,500 if the effective tax rate with the penalty is 25%, which is crazy. So you're taking the money out to just throw away $2,500.
We've been in these situations. We've had these conversations with clients. We try to figure out other solutions.
Yeah. Sometimes there honestly isn't another solution, and so they have to pull the money. It's a bad situation when you get to that stage. There's really nothing else you can do at that point.
But people do it all the time, and the worst part is they might be 55 or something like that, get the extra penalty on top, and then basically have no money at 55.
Seen it.
I've seen it, too. And there's nothing you can do at that point. There's just not enough time to make up where you can build up enough money unless you win the lottery, pretty much, to make up for what you just pulled out.
So our answer to option four, take the money out, would be: unless you absolutely have to do that, please don't.
Please don't.
Other 401(k) Considerations
All right. Now that we've talked about the options of what to do with old 401(k)s, let's talk about 401(k)s in general briefly and hit some highlights and some nuggets—things that you can apply in your situation or things that you can throw in on top of thinking about whether you should have a 401(k) or utilize your 401(k).
Yeah. I think one of the things you need to consider before rolling your 401(k) to an IRA is if somewhere down the road you're thinking about doing a backdoor Roth IRA.
For sure, because you can't do one if you have a traditional IRA, or at least money in a traditional IRA.
The other thing I would tell people, too, is when you're looking at whether you should start the 401(k) at your place of work if you don't have one yet, does the company offer a Roth 401(k)? You can usually take the amount that you contribute to the 401(k) and start Roth money.
Now, the match from the business will typically be pre-tax.
Occasionally, I have seen Roth 401(k) contributions. Few and far between, but I have seen it.
So I guess one of the other things is if you have an old 401(k) that maybe had a Roth component to it—and some 401(k) plans even have an after-tax component to it—if you want to roll it over on your own, you're going to have to open three accounts.
Yeah.
Right. So you need a traditional IRA, you need a Roth IRA, and you need an individual account.
Yep.
They don't all just go into one account. Which also brings up the point, too, if you have employer stock or employer stock options, when you go to roll that out, there can be certain tax consequences. Be aware of those.
How Does Your Old 401(k) Fit Into Your Retirement Plan?
So, we just went through the four options of things you can do with your old 401(k), but really the bigger planning question is: How does this money fit into my retirement plan?
Yeah, which is a really good question. Realistically, I don't think most people think about how the 401(k) applies. What other retirement accounts do you have? What all do you have? Do you also plan on receiving Social Security?
I know a lot of my generation, when I talk to them, it's, “I don't plan on it. I don't sit there and think that I'm going to get it.”
Do you plan on taking some of your retirement money that you've saved up and putting it in an annuity with an income rider that gives you something like a personal pension?
You've heard me say it once, I'll say it again: income is the only outcome that matters when it comes to retirement. And so a lot of the things that we do translate to, “How does that produce me income?” That plan becomes a pretty long list.
I think that's what matters: how does it fit in?
It's funny. Two videos ago, we talked about the different ages that matter for retirement or planning for retirement, and the conclusion was it's basically all connected. It's the same here.
Yeah.
Any one of these choices is going to be connected to something else that can affect your overall retirement planning.
So, to close this one out, an old 401(k) can stay where it's at. It doesn't necessarily need to move.
Sure.
It also doesn't necessarily mean it needs to stay there. I think the underlying theme that has happened in most of our videos is everybody's different, and everybody is going to have a different answer. So there's no right or wrong answer for this particular question.
Yeah. It comes down to the individual scenario and: Does it make sense?
Yep. And that's part of being a fiduciary, too. You have to make the decision based on—it's not a matter of how much money we manage. It's: Does it make sense for you?
Here's the cost difference. Does that make sense? Here's everything about it. Pros and cons. How do you feel?
And that's our job.
So, with that said, signing off.
Signing off.