Changing jobs? Here's how to manage your retirement funds

By Altelisha "Lisha" Taylor, MD, MPH
Published April 2, 2024

Key Takeaways

  • When you change jobs, figuring out what to do with your retirement account can be confusing—and time consuming. 

  • Different options have different benefits; for example, you can leave your retirement money where it is, or you can use the opportunity to roll it over into a retirement account that lets you take a more hands-on approach to investing (which may allow for greater returns in the long run).

  • As a physician, you should think twice before rolling the money into a traditional IRA, and instead roll it into a Roth IRA—but only if you can afford the temporary increase in taxes. 

Finance-savvy physicians use retirement accounts to grow their net worth by investing money and minimizing their tax bill. However, many doctors aren’t sure about what to do when they switch jobs. 

Don’t let concerns about your retirement investments interfere with your excitement about starting a new job. You may be losing your company match in your old employer-sponsored retirement plan, but changing jobs may also allow for more autonomy over your investment decisions. 

Here’s my best advice for what to do with your retirement funds when you get a new job.

Option 1: Leave it where it is

If you like the retirement plan investment options at your old job and the fees are low, just let the money stay there and continue to grow. Although you can’t add more money to that particular work-sponsored account, you can let the money you have already invested continue to grow over time. 

Related: Retirement investing: Everything you need to know

This is what I did when I finished residency. I liked the way my money was being invested (the job had good investment options with index and target-date funds), and I liked that the fees were reasonable—in my case, this meant with expense ratios of less than $0.15 per share and a low yearly cost in management fees. I am also still able to log into the brokerage firm that houses the account—which for me is Fidelity—and track its growth.

"I plan on keeping the money in the original account and withdraw it when I turn age 55, penalty-free."

Lisha Taylor, MD, MPH

However, your old employer may demand that you move the money—don’t worry, you still have other good options to explore. 

Option 2: Initiate a rollover into your new job’s retirement plan

This may be a good option if you’re not particularly thrilled with the retirement account options at your old employer—maybe the fees are too high, or you don’t like how your investment has been performing. It may also be a good idea to rollover your old account if you don’t want to keep track of multiple accounts and would prefer to have them all in the same place. 

To rollover your old employer-sponsored retirement account into your new account, you simply contact the custodian or manager of the retirement plans at your old job via your HR department and let them know you want to rollover the funds. This is called a direct transfer. As the money is going from one pre-tax retirement plan to another pre-tax retirement plan, you won’t owe any taxes. You are simply combining two accounts into one. 

Something to note: Some organizations may make you wait until you’ve been at the new job for a certain length of time before they accept retirement rollovers, so it’s worth checking in with your new HR rep. 

Option 3: Move it into a traditional IRA

With this option, you call a brokerage firm like Fidelity or Vanguard and let them know you want to open an individual retirement account, or that you want to roll money from your old job’s retirement plan into your existing IRA. 

Putting the money into a traditional IRA may be a good choice for people who don’t have decent retirement options at their new job. It is also a good choice for people who want a bit more control over their investments instead of having it tied to their employer. 

With more control, you can invest the money in whatever you want—whether that’s individual stocks or mutual funds you find appealing. Through a self-directed IRA, you can invest in things like real estate, art, business partnerships, and precious metals. The downside of putting the money in a traditional IRA is that you will be excluded from using the backdoor Roth IRA method.

Option 4: Convert it to a Roth IRA

Choosing to convert your work 401K (or 403b) into a Roth IRA is different from putting the money into a traditional IRA. Unlike a traditional IRA, which you contribute to with pre-tax dollars, you contribute to a Roth IRA with post-tax dollars. 

Why does this matter? Because with a Roth IRA you can invest in a way that allows your money to make even more money over time, and you never have to pay taxes on the profits. 

Plus, you can take your contributions out of the Roth IRA after 5 years without any penalties, which means it can serve as an extra emergency fund. In order to convert the money in your 401K (where you made contributions with pre-tax dollars) into a Roth IRA (which you contribute to with post-tax dollars), you have to pay taxes on that money. 

Related: 7 reasons your taxes are high as a physician (and what you can do about it)

For example, if you have $10,000 in your 401k, and your marginal tax rate is 25%, then converting your 401k to a Roth IRA will increase the amount of taxes you owe by $10,000 x 0.25 = $2,500.

"This may seem like a lot of money now, but paying the taxes now can save you a substantial amount of money in taxes later."

Lisha Taylor, MD, MPH

Plus, like a traditional IRA, converting the money from your job’s 401k into a Roth IRA still allows you to have control over your money and invest in things like real estate, Bitcoin, precious metals, and mutual funds—and it allows you to contribute to your backdoor Roth IRA each year. 

Before you decide what to do, see how much money you have in your 401k and calculate the taxes you’d have to pay if you converted it to a Roth IRA. If you can handle the tax cost, then converting it to a Roth IRA may be worth it. 

Option 5: Cash it out

Technically speaking, you can cash out your 401k at your old job spend it on whatever you want. This may be something to consider if you need the money for a large expense, to pay off debt, or some other reason.

While it may be nice to get an influx of cash, understand that the amount you get may be much less than you think, because you will have to pay taxes on that money. And, if you are under age 55, you will also incur a 10% early withdrawal penalty. 

Related: 6 money mistakes to avoid as an early career attending physician

For example, if you have $15,000 in your work 401k and you want to cash it out, realize you will not get a $15,000 check. If your marginal tax rate is approximately 22% and you are under age 55, then you will only get a check for around $10,000 (just two-thirds of the money you had in the account) once you account for taxes and the early withdrawal penalty. Because of the taxes and penalties, cashing out your old 401k isn’t often recommended.

What this means for you

You have several different options of what to do with your 401k (or 403b) when you change jobs. In order to avoid paying a significant sum in taxes, some people leave the money where it is or roll it into their new job’s 401k. If they can afford the taxes, then they may try to convert it to a Roth IRA to save themselves money later in life and give themselves more control over their investments. Other options are to put it into a traditional IRA or cash it out. Ultimately, the choice is yours.

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