Leaving a job is a big life transition, and with it comes an important financial decision: what should you do with your 401(k)? In 2025, with changing tax laws, market fluctuations, and evolving retirement needs, rolling over your 401(k) properly could save you thousands and secure your future.
At V SPARK Financial Services, we guide professionals, entrepreneurs, and families in making confident, informed choices about their retirement plans. Here’s what you need to know before making your next move.
What Is a 401(k) Rollover?
A 401(k) rollover is the process of moving your retirement savings from your old employer-sponsored plan into a new retirement account, usually an IRA (Individual Retirement Account) or a new 401(k). This allows your money to continue growing tax-deferred (or tax-free in some cases), without early withdrawal penalties.
Why It Matters:
If done incorrectly, you could face:
- Taxes on the full amount
- Early withdrawal penalties (10%)
- Loss of future growth opportunities
Your Options After Leaving a Job
- Leave the money in your old 401(k)
- Pros: Money continues to grow tax-deferred
- Cons: Limited investment choices, less control, harder to manage multiple accounts
- Roll it over into an IRA (Recommended)
- Pros: More control, wider investment options, easier to manage
- Cons: Need to choose the right type (Traditional vs. Roth)
- Move it to your new employer’s 401(k) (if available)
- Pros: Consolidates accounts
- Cons: New plan might have limited options or higher fees
- Cash it out (Not Recommended)
- Pros: Immediate money
- Cons: High taxes and penalties, loss of retirement growth
Should You Choose a Traditional or Roth Rollover?
- Traditional IRA Rollover: Tax-deferred, just like your current 401(k). You pay taxes when you withdraw in retirement.
- Roth IRA Rollover: You pay taxes now on the rollover amount, but enjoy tax-free withdrawals in the future.
✅ In 2025, many financial advisors recommend converting to a Roth if your income is currently in a low tax bracket.
Rollover Checklist: Step-by-Step
- Contact your old 401(k) plan provider
- Choose the right IRA or new 401(k) account
- Request a direct rollover (trustee-to-trustee transfer)
- Monitor the transfer to ensure no taxes or penalties are applied
- Update your beneficiaries and investment choices
Common Mistakes to Avoid
- ❌ Taking a check made out to you (triggers taxes!)
- ❌ Missing the 60-day rollover window
- ❌ Not consulting a financial professional before converting to Roth
- ❌ Ignoring small 401(k) balances (they add up!)