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Managing Retirement Plan Savings When Leaving a Job

What should you do after a job loss or change or when retiring?

Keeping control of your retirement accounts

If you have been displaced or are changing jobs or retiring, one of the most important decisions you may face is how to handle the savings you’ve accumulated in your qualified employer-sponsored retirement plan (QRP), such as a 401(k), 403(b), or governmental 457(b).

Choosing an appropriate strategy can help minimize taxes and make the most of your savings. You generally have four options:

  • Roll over your assets into an Individual Retirement Account (IRA)
  • Leave your assets in your former employer’s QRP, if the plan allows
  • Move your assets directly to your current or new employer’s QRP, if the plan allows
  • Take your money out and pay the associated taxes

Each of these options has advantages and disadvantages, and the one that is best depends on your individual circumstances. You should consider features, such as investment choices, fees and expenses, and services offered. A Wells Fargo Advisors Financial Advisor can help educate you regarding your choices so you can decide which one makes the most sense for your specific situation. Before you make a decision, read on to become more informed and speak with your retirement plan administrator and tax professional.

Roll your savings into an IRA

Rolling your retirement savings directly into an IRA allows your assets to continue their tax-advantaged status and growth potential, the same as in your employer’s plan. In addition, an IRA often gives you access to investment advice and more investment options than are typically available in an employer’s plan.

  • You generally avoid current income taxes when rolling over directly to an IRA.
  • You can maintain your retirement savings at the same firm as your other financial accounts.
  • Traditional and Roth IRAs are protected from creditors in federal bankruptcy proceedings up to a maximum of $1,512,350, adjusted periodically for inflation.

  • IRA fees and expenses are generally higher than those in a QRP.
  • Required minimum distributions (RMDs) must be taken from Traditional, SEP, and SIMPLE IRAs by April 1 following the year you reach age 73. If you do not take your RMD on time or in the right amount you may subject you to an IRS 25% excise tax. This tax can be reduced to 10% if corrected within two years from the date the tax is imposed.
  • Before-tax amounts taken from IRAs are subject to ordinary income tax and may be subject to a 10% additional tax for early or pre 59 ½ distributions, unless an exception applies.
  • IRAs are subject to state creditor laws regarding malpractice, divorce, creditors outside of bankruptcy, or other types of lawsuits.
  • If you hold shares of your employer’s stock (company stock) in your QRP and those shares have increased in value since you purchased them, the difference between the price you paid (cost basis) and the stock’s price is called the net unrealized appreciation (NUA). You lose the ability to take advantage of favorable NUA tax treatment if you roll the shares into an IRA.

Leave your savings in your former employer’s plan

While this approach requires nothing of you in the short term, managing multiple retirement accounts at different financial institutions and with former employers can be cumbersome and confusing in the long run. And you will continue to be subject to the rules of each QRP regarding investment choices, distribution options, and loan availability.

  • No immediate action is required.
  • Investments keep their tax-advantaged growth potential.
  • You can typically keep your current investments and continue to have access to them. Please contact your plan administrator for details.
  • QRP fees and expenses are generally lower than in an IRA.
  • You avoid a 10% additional tax on distributions from that plan if you leave the employer in the year you turn age 55 or older (age 50 or older for certain public safety employees and private sector firefighters).
  • Generally, QRPs have bankruptcy and creditor protection.
  • Employer securities (company stock) in your plan may have increased in value. The difference between the price you paid (cost basis) and the stock’s increased price is NUA. Favorable tax treatment may be available for appreciated employer securities owned in the plan.

  • Your employer may not allow you to keep your assets in the plan.
  • You generally are allowed to repay an outstanding loan within a short period of time.
  • Additional contributions are typically not allowed.
  • You must maintain a relationship with your former employer, possibly for decades.
  • Distributions taken prior to age 59½ may be subject to a 10% additional tax as well as ordinary income tax, unless an exception applies.
  • RMDs from your former employer’s plan begin April 1 following the year you reach 73, and continue annually thereafter. If you do not take your RMD on time or in the right amount you may subject you to an IRS 25% excise tax. This tax can be reduced to 10% if corrected within two years from the date the tax is imposed.
  • RMDs must be taken from each QRP. This means you cannot aggregate your RMDs from multiple QRPs and take the distribution from only one account. If you have money in, for example, five QRPs, you will need to calculate and take RMDs annually from each of them.
  • Not all QRPs have bankruptcy and creditor protection under ERISA.
  • You should periodically review your investments and carefully track associated account documents and information.

Move assets directly into your current or new employer’s plan

If you’re joining a different company, moving your retirement savings directly into your new employer’s QRP may be an option. This may be appropriate if you want to keep your retirement savings in one account and you’re satisfied with the investment choices the new plan offers. This alternative shares many features and considerations of leaving your money with your former employer.

  • Investments keep their tax-advantaged growth potential.
  • Fees and expenses are generally lower with a QRP versus an IRA.
  • You avoid the 10% additional tax on distributions from the plan if you leave the company in the year you turn age 55 or older (age 50 or older for certain public safety employees and private sector firefighters).
  • RMDs may be deferred beyond age 73 if the plan allows and you are still employed and not a 5% or more owner of the company.
  • Generally, QRPs have bankruptcy and creditor protection.
  • Loans may be allowed.

  • There may be a waiting period for enrolling in the new employer’s plan.
  • Investment options for the plan are chosen by the QRP sponsor and you choose from those options.
  • You can transfer or roll over only the QRP assets that your new employer permits. Please contact your plan administrator for details.
  • Your new employer will determine when and how you can take distributions from the new QRP.
  • Favorable tax treatment of appreciated employer securities is lost if moved into another QRP.

Take a lump-sum distribution (taxes may apply)

You should carefully consider all the financial consequences before distributing your QRP savings. The impact will vary depending on your age and tax situation. If you absolutely must access the money, you may want to consider distributing only what you need until you can find other sources of cash.

  • You have immediate access to your retirement money and can use it however you wish.
  • Although distributions from the plan are subject to ordinary income taxes, you avoid the 10% additional tax on distributions taken from the plan, if you turn:
    • Age 55 or older in the year you leave your company.
    • Age 50 or older in the year you stop working as a public safety employee—such as a police officer, firefighter, or emergency medical technician—and are taking distributions from a governmental defined benefit pension or governmental defined contribution plan. This also applies to private sector firefighters taking distributions from a qualified retirement plan or 403(b). Check with the plan administrator to see if you are eligible.
  • Lump-sum distribution of appreciated employer securities may qualify for favorable tax treatment of NUA.

  • Your funds lose their tax-advantaged growth potential.
  • Distribution may be subject to federal, state, and local taxes unless rolled over to an IRA or QRP within 60 days.
  • If you leave your company before the year you turn 55 (or age 50 for public service employees and private sector firefighters), you may owe a 10% additional tax on the distribution.
  • Your former employer is required to withhold 20% of your distribution for federal taxes.
  • Depending on your financial situation, you may be able to access a portion of your funds while keeping the remainder saved in a retirement account. This can help lower your tax liability while continuing to help you save for your retirement. Ask your plan administrator if partial distributions are allowed from your employer’s QRP.

Next steps

  • Learn about your choices before taking a distribution.
  • Pay special attention to additional taxes and fees associated with each possible action.
  • Contact your financial advisor and other professionals if you have questions about how to proceed with the QRP distribution option you select.


Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.