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What to do with your retirement savings when you leave a job

What should you do with your money in your company’s retirement plan when you retire, change careers or take time off? Here are four options to consider, each with its own pros and cons.

  1. Roll assets into an American Funds IRA.

    Pros: You avoid possible withdrawal penalties and can combine multiple retirement accounts into one so that your assets can continue to grow tax-deferred, while you are not subject to a company plan's rules or restrictions.

    Cons: While some company plans allow you to borrow — and repay — money, you cannot take a loan from an IRA.

    How to open your American Funds IRA

  2. Remain in your current plan.

    Pros: There can be value in doing nothing. Your money can continue to grow tax-deferred, you avoid withdrawal penalties, and you can keep the investments you’ve chosen.

    Cons: Plan restrictions and rules still apply. For example, if your balance is $1,000 or less, your former employer may cash out your account. A balance between $1,000 and $5,000 could be invested in an IRA selected by your former employer, if required by the terms of your plan.

  3. Move to your new employer's 401(k) plan.

    Pros: More of your assets may be consolidated conveniently with one provider and may continue to accumulate tax-deferred. You’ll also avoid possible withdrawal penalties.

    Cons: Plan rules and restrictions still apply, and you are limited to the investment options provided by the company’s plan.

  4. Cash out.

    Pros: You’ll have money on hand, which you may need for current expenses.

    Cons: There are taxes and potential penalties. Your employer must withhold 20% of the taxable portion of your distribution for federal income taxes, and an additional amount for state and local taxes if applicable. Plus, there’s a 10% early withdrawal penalty if you are under age 55 at the time you leave your job. Do the math, and you may find that liquidating your account could be expensive. Roth accounts, of course, offer tax-free withdrawals — as long as the account was established at least five years earlier and you have reached age  59-1/2.


There are many issues to consider when deciding what to do with your retirement plan account when leaving a job, including taxes, fees and expenses. Please consult your tax or legal advisor before making any decisions. This material is not intended to be used by any taxpayer for the purpose of avoiding penalties that may be imposed by U.S. federal tax laws.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.