You have four options. You do not have to choose today. Below is what each one actually costs you, what leaving it alone gets you, and the specific things you give up permanently the moment the money moves.
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You have four options: leave it in the plan, roll it to an IRA, roll it to a new employer's plan, or take the cash. Nothing forces you to decide the week you retire.
If your vested balance is above your plan's cash-out threshold, you can generally leave the money exactly where it is. Federal law lets a plan force out a balance of $7,000 or less without your consent. Above that, the choice is yours. Nothing has to come out at all until required minimum distributions begin at age 73.
So the honest first answer is: often, nothing. The question worth asking is not "where should I move this," but "what does moving it cost me, and what does it buy me." Those are different for almost everyone. For some people, particularly anyone retiring before 59½ or holding a government 457(b), moving the money is an expensive, one-way door.
Usually, yes. This surprises people, because almost every article on the subject jumps straight to comparing rollover options, as if staying put weren't on the menu.
Under federal law, a plan may distribute your balance without your consent only if it is $7,000 or less. Above that, the plan needs your written consent to push you out. If the involuntary distribution is more than $1,000, the plan has to roll it into an IRA it chooses rather than mail you a check.
Three caveats that most pages leave out. Each one is real:
Indefinitely, until age 73. That is when required minimum distributions start. There is no rule that says you must empty a 401(k) within a certain number of years after retiring. No deadline arrives simply because you stopped working.
If you are still working past 73 for the employer that sponsors the plan, and the plan allows it, you may be able to delay distributions from that plan until you actually retire. That delay is not available to anyone who owns more than 5% of the business. It is never available for an IRA.
A note on a number you may be carrying around: the required distribution age was 70½, then 72, and is now 73. If you have been planning around 70½ or 72, you have more room than you think.
Every one of these is the right answer for somebody. The trick is knowing which facts about your situation point to which option.
Do nothing. The money stays invested where it is.
Move it to an account you control at a custodian you choose.
Move it into the plan at a job you still hold.
Distribute it to yourself. Rarely the whole balance.
These are not mutually exclusive. Treating them as one big irreversible choice is where people go wrong. You can leave part of a balance in the plan and roll part of it. You can roll the pre-tax portion to a traditional IRA and the after-tax portion to a Roth IRA in the same transaction. You can wait a year and decide with better information.
What you generally cannot do is undo a rollover once it lands.
This is the section most rollover pages don't write. The firms publishing them, including the large custodians, are paid when the money moves to them. We are too. More on that below. Here is the honest list.
If you separate from service during or after the calendar year you turn 55, distributions from that employer's plan are exempt from the 10% early-distribution tax. Roll the money to an IRA and the exception is gone. The tax code turns it off for IRAs explicitly. You are then locked to 59½.
For someone retiring at 56 who may need money before 60, this is the single most expensive mistake on this page. It is almost never mentioned in rollover marketing. Note also that the test is the calendar year you turn 55. Separate in March at 54 and turn 55 in December, and you still qualify.
Distributions from a governmental 457(b) (the deferred comp plan most county, city and public hospital district employees have) are not subject to the 10% early-distribution tax at any age once you separate. Not at 55. Not at 50. At any age.
Roll it into an IRA and that disappears completely. Worse, you cannot even fall back on the Rule of 55, because the code turns that off for IRAs too. A 55-year-old county employee who rolls their 457(b) to an IRA has converted the most liquid pre-tax account they will ever own into one that costs 10% on every dollar touched before 59½.
If your 401(k) holds appreciated stock in your employer, a rule called net unrealized appreciation lets you distribute the shares in kind as part of a lump-sum distribution, pay ordinary income tax only on the plan's cost basis, and pay long-term capital gains rates on the growth when you eventually sell.
Roll those shares into an IRA and the election is permanently forfeited. Every dollar becomes ordinary income on the way out. For someone with decades of appreciated employer stock, the difference is not small. None of the top-ranking pages on this question mention it.
Large employer plans negotiate institutional share classes that individual investors cannot access. The federal Thrift Savings Plan, which covers military and civilian federal employees at Camp Pendleton, charges roughly 0.034% to 0.051% a year. There is no retail IRA in existence that beats that.
"Your 401(k) has high fees" is sometimes true and sometimes a sales line. Look up your plan's actual expense ratios before you accept it as a premise.
If part of your balance sits in a stable value fund, that option vanishes on rollover. There is no IRA equivalent. For a retiree who wants a genuinely low-volatility sleeve, this is worth pricing before you give it up.
Both halves of the usual statement are wrong. Here is the accurate version. An ERISA-covered 401(k) is protected from creditors with no dollar cap, under federal law upheld by the Supreme Court.
In bankruptcy, an IRA is also well protected. There is a cap of $1,711,975 on contributory IRA money, but amounts rolled over from an employer plan, plus their earnings, are exempt without limit. So "your IRA is only protected to about $1.7 million" is simply false for rollover money.
Outside bankruptcy is where California differs. Under state law, an IRA is exempt from a judgment creditor only to the extent necessary to support you in retirement, a discretionary standard decided by a court, not a dollar figure. That is meaningfully weaker than the plan you came from. If you have real liability exposure, this belongs in a conversation with an attorney, not on a landing page.
Balances held in a 403(b) before 1987 are not subject to the age-73 distribution rules. They can sit until age 75. The grandfather depends on the provider tracking that pre-1987 balance separately. It does not survive a move to an IRA. For a teacher or hospital employee with a long tenure, that is a real, quantifiable reason to look before rolling.
A page that only listed the costs would be as slanted as one that only listed the benefits. Rollovers are frequently the right call, for reasons that have nothing to do with who is paid.
Notice that most of these matter after 59½. Most of the costs in the previous section matter before it. That is not a coincidence. It is most of the decision for people retiring in their fifties.
There are two ways to move money out of a plan. One of them has a trap in it that costs people real money every year.
The plan sends the money straight to the receiving IRA or plan. You never touch it. Nothing is withheld, no clock starts, and there is nothing to go wrong. Ask for a direct rollover, sometimes called a trustee-to-trustee transfer, and confirm in writing that the check is made payable to the receiving custodian, not to you.
The plan pays you. You then have 60 days from receipt to get the money into an eligible account. Two things bite:
The plan must withhold 20% for federal tax, and you cannot waive it. This is not optional and not negotiable. It is written into the statute. Which creates the 60 day trap:
| Your 401(k) balance | $400,000 |
| Mandatory federal withholding (20%) | − $80,000 |
| Check you actually receive | $320,000 |
| Amount you must deposit within 60 days to avoid tax | $400,000 |
Illustrative only. Not based on any actual client and not a projection of any result. State withholding, plan-specific rules and individual circumstances will change these figures.
To complete the rollover you have to replace the withheld $80,000 out of your own pocket, then wait until you file to get it back. If you cannot, that $80,000 becomes a taxable distribution. If you are under 59½ without an exception, it carries the 10% additional tax on top.
There is no version of this where the indirect route is better. If someone hands you a check, something has gone wrong.
The 20% is a deposit, not the tax. If you actually intend to cash out rather than roll over, 20% is frequently not enough. A large distribution can push you into a bracket well above that. The shortfall shows up in April.
California withholding works differently. The common claim is wrong. You will read that California withholds 10% of your distribution. It doesn't. When the payer uses the federal-linked method, California withholds 10% of the federal withholding. On that $400,000 example, it is roughly $8,000, not $40,000. And unlike the federal 20%, California withholding can generally be declined. Check with your payer using Form DE 4P.
The once-per-year rollover limit probably doesn't apply to you. The rule that allows only one 60-day rollover per 12 months applies to IRA-to-IRA rollovers. It does not apply to moving a 401(k) to an IRA. It does not apply to direct transfers at all. It is also not per-account and not per calendar year. Both of those versions come from guidance that was overturned in 2014 and still circulates.
Age 73. Not 70½, not 72. Your first required minimum distribution is due by April 1 of the year after you turn 73, and every year after that by December 31.
Taking that first one in the April grace period means two distributions land in the same tax year, which is usually a worse outcome than simply taking it on time.
Three things that change the picture:
You may have read that the age is rising to 75. It is scheduled to rise, but only for people who turn 74 after 2032, which is roughly those born in 1960 or later. If you are retiring now, your number is 73.
"401(k)" is shorthand. Most of the people who walk into our office in Escondido are holding something slightly different. The differences change the answer.
If you worked for the County of San Diego, the City of Escondido, Tri-City or Palomar, your deferred comp plan is probably a governmental 457(b). As covered above, it is exempt from the 10% early-distribution tax at any age after you separate. A rollover to an IRA destroys that permanently.
The practical sequencing for someone retiring in their fifties: spend the 457(b) first. Or at least leave enough in it to cover the years until 59½, before rolling anything. It is the most flexible pre-tax money you will ever hold.
One warning in the other direction. If you roll IRA or 401(k) money into a 457(b) expecting the whole balance to become penalty-free, it doesn't work. That money stays penalty-exposed. The plan is required to track it separately.
The TSP charges roughly 0.034% to 0.051% a year. That is close to the cheapest retirement money in the country. It is a serious argument for leaving it alone. TSP's withdrawal options are also far better than its old reputation: partial withdrawals from $1,000, installments you can adjust without restarting, and an annuity option.
One correction that matters here. There is a rule letting certain federal public safety employees take penalty-free distributions from age 50. It covers federal law enforcement, firefighters, air traffic controllers and a specific list of similar civilian roles. It does not cover uniformed service members. A Marine retiring at 20 years is typically in their late thirties or early forties and has neither the age-50 nor the age-55 exception. If someone has told you otherwise, they are wrong. Acting on it would be expensive.
If you have tax-exempt contributions from combat-zone pay in your TSP, confirm in writing that any receiving custodian will accept them. Some won't. The tax-exempt portion then gets paid out to you as a check rather than rolled, permanently out of a tax-advantaged account.
Neither pension can be converted to a lump sum. What exists is a refund of your own contributions, available only if you terminate rather than retire. Taking it forfeits your lifetime benefit entirely. For anyone with meaningful service, that trade is almost always poor. It is irreversible.
What is portable is the supplemental account alongside the pension; CalSTRS Pension2 (403(b), Roth 403(b), 457(b)) or a CalPERS 457 plan, which runs about 0.19% to 0.32%. Those follow the ordinary rollover rules, with the 457(b) caveat above.
Two corrections we run into constantly. First: it is true that California public school educators covered by CalSTRS do not pay into Social Security and earn no benefit from that employment. It is not true of CalPERS members generally. Coverage depends on whether your employer withheld Social Security taxes. Most state and local employees nationally are covered. Second: the Windfall Elimination Provision and Government Pension Offset, which reduced Social Security for many public employees, were repealed and no longer apply to benefits payable for January 2024 and later. Plenty of employer websites and handouts still describe them as live law. They aren't.
The plans across Carlsbad, Vista and San Marcos are ordinary 401(k)s. The ordinary analysis applies. Two things to check before assuming a rollover improves matters: the actual expense ratios in your lineup, which are often institutional and very low; and whether you hold appreciated company stock, which brings the net unrealized appreciation question into play.
RED Seven Wealth Management charges a fee based on the assets we manage. If you roll your 401(k) to an IRA that we manage, our revenue goes up. If you leave the money in your employer's plan, it does not. That is a real conflict of interest. You should read everything above with it in mind.
We would rather say it here than bury it. Three things follow from it that are useful to you:
Our advisory fee is based on the total value of the assets we manage for you. It is a blended rate, which means your whole balance is billed at the single rate for the tier it falls into rather than layered tier by tier.
| Up to $1,000,000 | 1.00% |
| $1,000,001 to $2,000,000 | 0.90% |
| $2,000,001 to $3,000,000 | 0.80% |
| $3,000,001 to $4,000,000 | 0.70% |
| $4,000,001 to $5,000,000 | 0.60% |
| $5,000,001 and above | 0.50% |
That is not the whole cost, and you should know the rest of it. Goldman Sachs charges 0.05% a year to hold the assets. That is paid to the custodian, not to us. The funds inside your account also carry their own internal expenses, which is exactly why the expense ratio of what you own matters as much as what you pay an adviser.
On a $1,500,000 account, the advisory fee is 0.90%, or $13,500 a year. Custody adds $750. That is $14,250 before the internal cost of the funds themselves.
Comparable services may be available from other sources at lower or higher cost. Fees are negotiable at our discretion. Our complete fee schedule, including how fees are calculated and billed, is set out in our Form ADV Part 2A, which is public and free to read.
We are a fiduciary and an SEC-registered investment adviser. You can read our filings, including how we are compensated, on the SEC's public database. The link is in the footer of this page.
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Usually yes. Federal law lets a plan force out a vested balance of $7,000 or less without your consent. Above that, the plan needs your written consent to distribute your account, so you can generally leave the money invested where it is.
Two limits are worth knowing. Your plan document may set a lower force-out threshold than $7,000, and the consent requirement itself broadly ends once you pass the later of the plan's normal retirement age or age 62, after which a plan whose document allows it may distribute a larger balance without asking. Check your Summary Plan Description.
Indefinitely, until required minimum distributions begin at age 73. There is no deadline that arrives simply because you stopped working. No rule requires you to empty the account within a set number of years after retiring.
Your first required distribution is due by April 1 of the year after you turn 73, and each subsequent one by December 31. Taking that first distribution during the April grace period puts two distributions in the same tax year, which is usually worse than taking it on time.
It depends on your age and what is inside the plan. Leaving it usually wins if you are between 55 and 59½ and may need the money, if your plan uses low-cost institutional funds, if you hold a stable value fund, or if you hold appreciated company stock. Rolling to an IRA usually wins if you are past 59½, have several old plans to consolidate, want qualified charitable distributions from 70½, or need beneficiary flexibility your plan doesn't offer.
You do not have to choose all-or-nothing. You can roll part of a balance and leave part of it, and you can wait. Be aware that any firm recommending a rollover is generally required to document why it is in your best interest, including firms, like ours, that are paid more when the money moves.
No. Nothing has to come out until age 73, when required minimum distributions begin. The age was 70½ and later 72, so many people are working from an outdated number.
If you are still working past 73 for the employer that sponsors the plan and you do not own more than 5% of the business, you may be able to delay distributions from that plan until you actually retire, if the plan allows it. That delay never applies to IRAs or to former employers' plans. Roth accounts inside a 401(k) no longer have lifetime required distributions at all, a change that took effect in 2024.
Traditional 401(k) money is taxed as ordinary income when you withdraw it, not when you retire. Simply retiring is not a taxable event. Neither is a direct rollover to an IRA. Qualified withdrawals from a Roth 401(k) are not taxed.
California taxes 401(k) and IRA withdrawals as ordinary income, and has no preferential rate for capital gains. If money is paid to you rather than rolled directly, the plan must withhold 20% for federal tax. That withholding is a deposit against your bill, not the final tax.
If you separate from service during or after the calendar year you turn 55, distributions from that employer's plan are exempt from the 10% early-distribution tax. This is often called the Rule of 55.
The exception applies only to the plan you separated from. It is turned off entirely for IRAs by statute. Rolling the money to an IRA destroys it and locks you out until 59½. Governmental 457(b) plans are more generous still. Distributions after separation are not subject to the 10% tax at any age. That advantage is also lost on a rollover to an IRA.
No. Contributions to a 401(k) come out of pay from the employer sponsoring the plan, so once you stop working there, contributions stop. You can still contribute to an IRA if you or your spouse have earned income.
If you are working part-time somewhere with a plan, the 2026 elective deferral limit is $24,500, plus a catch-up of $8,000 at 50 or older, or $11,250 if you are 60 to 63, which drops back to the regular catch-up at 64.