What to do with a former employer’s retirement plan

Changing jobs is a familiar part of many professional journeys. While the pace and reasons may vary, shifts in employment are often influenced by a mix of economic conditions, workforce trends and personal goals. Today’s labor market continues to evolve — shaped by demographic changes, immigration dynamics, technological innovation and shifting workplace expectations.

If you have experienced a job shift for any reason, you may want to consider all options regarding any savings in a workplace retirement plan you may have with a former employer. And if you are retiring soon, you may want to consider a retirement income plan to know how best to withdraw money wisely over the coming years. Regardless of why you are leaving your current role, there are options to consider when you move on:

1. Roll over your money to a new employer plan (if available and if rollovers are permitted).
2. Leave your retirement savings in former employer plan (if permitted).
3. Roll over former employer plan savings to an IRA.
4. Take a lump sum, cashing out and paying the required taxes on the distribution.
5. Make an income plan to pay yourself in retirement.

There are pros and cons to each choice, so be sure to understand the advantages and disadvantages of each of these choices before making a decision. You can also consult with a financial professional before making any moves.

Let’s dive a little deeper

Roll over your retirement plan to a new employer

Rolling over your workplace retirement plan can offer many benefits, such as consolidating finances, the ability to contribute to savings, managing expenses, getting an employer match, and expanding investment options. If your new employer allows roll-ins and offers solid, low-cost investments, it could be a smart choice. Larger plans, like Voya, often provide institutional-class funds with lower fees.

If you roll over to your new employer’s plan, make sure you don’t exceed annual contribution limits. For example, if you’re under 50 and have already contributed $10,000 in 2025, you can only contribute an additional $13,500. Exceeding this limit could result in a 6% penalty on the overage. Voya can help you navigate these rules and benefits.

Ready to roll over? The following are general steps, and you will want to consult with the administrators of both your former employer’s plan and your new employer’s plan to understand the details you will need to complete a rollover. Voya can help. You will likely need your:

• Account number of your former plan (check your most recent statement)
• Type of account you wish to rollover (Traditional or Roth)
• Personal information, including your Social Security number

Then, take the following steps:

• Decide your desired account transfer
  • Retirement plan to new employer: Check for allowance of roll-ins; know your investment options and fees
  • New or existing IRA: Explore expanded investment options
• Initiate the new account
  • Contact former employer plan to direct funds into your new account
  • Tax-deferred IRAs or 401(k)s can only move into like accounts; Roth money can only transfer to another Roth account
• Direct or indirect rollover
  • Direct rollover: Money is wired directly into your new account (non-taxed)
  • Indirect rollover: Physical check to you; must deposit within 60 days to avoid taxes and penalties
• Direct your investments yourself or work with a financial professional

Leaving a workplace retirement plan behind

If your plan allows, you can consider leaving your money in place until you get settled into a new position. Be aware of how your plan works and be sure to check all the fees associated with managing it. And you should know that if you have a balance less than $5,000 in your former employer’s plan, the company can legally convert your balance to a lump-sum cash payout. This would leave you having to pay state and federal taxes, as well as a 10% penalty if you are younger than 59½. Remember, depending on how many jobs changes you’ve had over time, if you choose to leave your money behind, be sure not to lose track of where it resides. One way of doing that to consider it is rolling it over.

Rolling over a former plan into an IRA

If your new employer doesn’t allow rollovers or you dislike its investment options, consider rolling your retirement plan into an IRA. You can do this through a financial services firm that has it available. IRAs can offer a more customized strategy and broader investment options. Be sure to research select fund performance and all fees associated with a brokerage account and to consult a financial professional if needed. As you near retirement, consider focusing on asset preservation with a more conservative approach. If you’ve worked for multiple employers, consider consolidating your efforts and roll former employer funds into one IRA for simplicity.

Note: If you have a pre-tax (sometimes called traditional or tax-deferred) retirement plan, you will need to open a traditional IRA to roll over your former employer’s plan. If you have an after-tax Roth 401(k), you’ll need to transfer it to a Roth IRA. Mixing this up can cause a tax mess, so be sure to consult with a qualified tax advisor before making any sudden moves.

Take a lump-sum cash distribution

Unless you need the money for a dire emergency, it’s not advised to cash out your retirement savings early. You’ll be hit with ordinary income tax no matter when you withdraw money, along with an early withdrawal penalty of 10% if you’re under the age of 59½. You may also push yourself into a higher tax bracket and reduce the principal, thereby potentially reducing any income earned on your investments.

Key takeaway

The bottom line: Unless you are facing a fiscal crisis, it may be in your best interest to keep your pre-tax earnings invested and working for you. Talk with a financial professional to find out how to best protect your income.

Final thoughts

Developing a financial plan is essential for achieving the best possible outcomes. Consulting with a financial professional can assist you in creating a comprehensive plan, especially as you navigate job transitions and prepare for retirement. While your overall financial wellness is ultimately up to you, Voya is committed to supporting you every step of the way, ensuring you can live and retire with confidence.