What happens to your 401(k) when you change jobs 

So, you’ve changed jobs—better fit, higher title, maybe a new city. In the rush of starting somewhere new, it’s easy to forget about your old 401(k). Should you start a 401(k) rollover? Ot should you leave it where it is?

Letting it sit can feel safe. But when you leave a company, things may change with that retirement account. The fee structure can shift. The subsidy that kept costs low may disappear. What was once an employee benefit can quietly become a fee drag on your retirement savings. 

The subsidy you didn’t know you had 

While you worked there, your employer likely covered plan administration fees. Those costs didn’t show up on your statements because someone else took care of them. 

When you leave, that coverage often ends. 

Now those fees—which are typically charged as a percentage of your assets or as a flat rate—can start to come out of your account. Every quarter. Every year. That’s separate from the expense ratios on your funds. It’s overhead. And it varies wildly depending on your former employer’s plan. Many people don’t take the time to review their plan documents to see what they are actually paying. 

How retirement fees compound against you 

A 1% fee doesn’t sound like much on a quarterly statement. But over 30 years, assuming steady contributions and average market returns, that 1% difference can cut your ending balance by more than 30%. 

That’s not a rounding error. That could be the difference between retiring at 65 and working until you’re 70. (This is a hypothetical example based on 7% average returns and maxing out annual retirement contributions. Actual returns vary. Market conditions change. But the math on fees is straightforward—they compound against you, year after year.) 

What else you might be giving up with an old 401(k)

Fees aren’t the only consideration when it comes to your old 401(k). Here’s what else you should keep in mind.  

Scattered accounts are hard to manage 
When your retirement savings are spread across three different logins with three different interfaces, it’s harder to see the full picture. You can’t optimize your asset allocation when you don’t know what you actually own. 

Limited investment menus 
Most 401(k) plans offer 10 to 20 investment choices. Your former employer picked them, not you. You might be stuck with high-fee actively managed funds when you’d prefer low-cost index options. 

Outdated allocations 
Your risk tolerance at 28 might be different from your risk tolerance at 38. Target date funds can change as you age. But if you’re not invested in those, it’s possible the allocation you chose years ago has drifted away from your strategy without you noticing. Or you may have a new strategy you’d like to pursue. 

Your four options after leaving a job

When you leave a job, you have four choices for your old 401(k). Each has tradeoffs to consider.  

1. Leave it where it is

Some plans allow this. Others don’t. If you have less than $7,000, your former employer may force you out. 

Consider this option if: 
Your plan has genuinely good, low-cost investment options 
You’re between 55 and 59½ and might need penalty-free access (special rule for separated employees) 
You’re satisfied with the fees and services 

Watch out for: 
Fee structures that change for former employees 
Limited investment options you didn’t choose 
One more login to remember 
 
2. Rollover your 401(k) into your new employer’s plan
If your new company offers a 401(k) and accepts rollovers, this consolidates your accounts. 

Consider this option if: 
Your new plan has strong investment choices at competitive prices 
You want 401(k) features like loan provisions 
You prefer having everything in one employer-sponsored plan 
Watch out for: 
Limited investment menus (same issue, different employer) 
Fees and services that may not be better than what you had 

 
3. Rollover your 401(k) into an IRA 

An IRA gives you more control. More investment choices. Potentially lower fees. But also more responsibility and personal management. 

Consider this option if: 
You want access to thousands of stocks and ETFs, not just 20 funds 
You’re comparing fees and see potential savings 
You’re comfortable making your own investment decisions 

Watch out for: 
You lose certain 401(k) protections (like loan provisions) 
You may lose access to institutional-priced funds 
Creditor protection rules vary by state 
Required minimum distributions may start earlier in some cases 

 
4. Cash it out (emergencies only!) 

Don’t do this unless it’s an emergency. 

You’ll pay taxes on the full amount. If you’re under 59½, you’ll also pay a 10% early withdrawal penalty. A $50,000 balance can become $30,000 after taxes and penalties. 
When an IRA rollover makes sense 

A direct 401(k) rollover to a Traditional IRA isn’t usually a taxable event. Your money stays tax-advantaged. You just move it to a place with more options. 

The advantage: you get to choose what you invest in. Index funds with expense ratios as low as 0.03%. Individual stocks. Sector ETFs. You’re not limited to someone else’s menu. 

The tradeoff: You’re now responsible for the decisions. No one is curating a list of 20  options for you. You build your own portfolio. 

For some people, that’s exactly what they want. For others, the structure of a 401(k) is more comfortable. 

How M1 handles IRAs and retirement rollovers

If you decide an IRA fits your situation, here’s how M1 works: 

Straightforward pricing 

$3/month for accounts under $10,000. The fee is waived for accounts over $10,000. No trade commissions.^ No percentage-based advisory fees. Other fees may apply. See M1’s Fee Schedule for more information.  

Broad investment access 

Over 6,000 stocks and ETFs. Low-cost ETFs from Vanguard, Schwab, BlackRock. You build the portfolio. M1 handles the execution. 

Automated maintenance

Dynamic rebalancing directs new contributions toward underweight positions. You set your target allocation once. M1 keeps it on track as you contribute. You’re still responsible for choosing appropriate investments and maintaining an allocation that matches your risk tolerance. M1 just automates the busy work. 

Getting the 401(k) rollover done 

401(k) rollovers involve paperwork. Forms. Phone calls with your old plan administrator. But M1 partners with Capitalize to simplify the 401(k) rollover process. Our specialists guide you through the process. In many cases, you can start in the app. They handle coordination with your old provider. The timeline varies—it usually takes a few weeks to complete depending on your former plan administrator. 

Making the decision: to rollover or not to rollover?

Here’s the reality: there’s no universal “right answer.” 

Some 401(k) plans are excellent—low fees, great fund options, and strong service. If that’s your situation, staying put might make perfect sense. 

Other plans are expensive, limited, and designed more for the employer’s convenience than yours. In those cases, moving your money could save you tens of thousands over time. 
The key is understanding what you’re actually paying, what you’re getting, and whether there’s a better option for your specific situation. 

You should talk to a professional if: 

• You’re not sure about the tax implications 
• You have company stock in your 401(k) (special rules apply) 
• You’re weighing creditor protection or estate planning concerns 
• You just want a second opinion 
• Your old 401(k) represents years of contributions. It deserves more than being forgotten in the chaos of a job transition. 

This material discusses rollovers from employer-sponsored retirement plans to IRAs. Before deciding whether to retain assets in a 401(k) or roll over to an IRA, you should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions, and tax treatment. Please see IRS guidance about rollovers for additional details and considerations. 

M1 does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. 

All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future performance. 

Brokerage products and services are offered by M1 Finance LLC, Member FINRA / SIPC, and a wholly owned subsidiary of M1 Holdings, Inc. 

^M1 Finance, LLC does not charge commission, trading, or management fees for self-directed brokerage accounts. You may still be charged other fees such as M1’s platform fee, regulatory fees, account closure fees, or ADR fees. For a complete list of fees M1 may charge visit M1 Fee Schedule. 

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