Managing a Retirement Plan from a Previous Employer


Throughout our lives, it’s common to switch jobs multiple times, and to occasionally take leave from the workforce. In fact, the average job tenure in the United States is just 4.2 years.1

Each new career change or absence may mean a retirement account left behind. As these old accounts pile up, it can become difficult to get a clear picture of your overall retirement preparedness.

When you’ve recently left a job, no matter the reason, it can be a good time to take stock of this important area of your financial life and think about a path forward. You generally have four options for handling a retirement plan balance in this moment of transition:

  1. You can cash out the amount in your qualified plan account (a 401(k) is one of several kinds of retirement plans that are referred to as a qualified plans since they qualify for tax benefits) and take a lump sum distribution. This would be subject to mandatory 20% federal tax withholding, as well as potential income taxes and a 10% penalty tax.

You can continue tax deferred growth potential by doing one of the following:

  1. Leaving your assets in your former employer’s plan (check with your former employer to see if this is permitted).

  2. Rolling over your retirement savings into your new employer’s qualified plan, if one is available and if rollovers are permitted.

  3. Rolling over the retirement savings into an IRA

Weighing Your Options

Saving for the lifestyle you want in retirement may very well be your greatest financial goal—and challenge. Leaving a job is a significant inflection point on your retirement saving journey, and you may be called on to make important decisions about the nest egg you’re building.

Each of the options above offers advantages and disadvantages, depending on your particular facts and circumstances (including your financial needs and your particular goals and objectives).  Some of the factors you should consider when making your decision, include (among other things) the differences in: (1) investment options, (2) fees and expenses (Note: the fees associated with an IRA will generally be higher than those associated with a plan), (3) services, (4) penalty tax-free withdrawals, (5) creditor protection in bankruptcy and from legal judgments, (6) Required Minimum Distributions or “RMDs”, (7) the tax treatment of employer stock if you hold such in your current plan, and (8) borrowing privileges (e.g., loans are not permitted from IRAs, and the availability from an employer’s qualified retirement plan will depend on the terms of the plan). Please note that these are just examples of the factors that may be relevant to you when analyzing your available options, other considerations may apply to your specific situation, and the importance of any particular factor will depend upon your individual needs and circumstances. You should also discuss your options with your legal and tax advisor.  

Everyone’s situation is different, so the best option for addressing your old retirement plan is ultimately the one that makes sense for you and your goals. At Morgan Stanley, our goal is to provide you with the education you need to make an informed decision.


1 Korn Ferry, “The Nomad Economy.” Available here: Accessed March 5, 2021


Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Investment Advisers Act of 1940, ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

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