What to Do With an Old 401(k) Account

When you leave a job, you often face a decision about what to do with your 401(k) or other workplace-based retirement accounts. You could leave it in place (assuming your old company or plan administrator allows ex-employees to do so) or cash it out. But unless you're retiring or you need the funds immediately, the smartest course is usually to roll over the account.

A rollover is when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of them, within 60 days, to another eligible retirement plan—generally, a rollover IRA that you set up. That way, you maintain the tax-deferred status of your retirement account, consolidate all retirement accounts for easier management, and—because it's your own account—benefit from increased investment flexibility.

Under this option, you would ask your plan administrator to make a direct and tax-free transfer of funds from your former employer’s plan to an IRA at a financial institution of your choice.

Key Takeaways

  • When leaving your job, a rollover of 401(k) retirement plan funds into a rollover individual retirement account (IRA) is generally the most advantageous strategy.
  • If you are interested in earning a cash bonus when you open a new account, you should research promotions offered periodically by financial firms and banks.
  • If you cash out your old 401(k), you may be hit with a penalty, and your money will be taxed as income.
  • At your direction, your employer can transfer your 401(k) directly to the IRA, avoiding tax payments and penalties.
  • Many banks, brokerages, and investment firms offer cash bonuses and free trades if you establish a rollover IRA with them; the more you invest, the bigger the perks.

The Big Choice

Ah, but which financial institution should you choose? IRAs are a big business for banks and investment companies. Many firms offer incentives, in the form of matches and bonuses, to encourage you to sign up with them.

Although the deals vary, certain conditions are standard. To qualify for the perks, most institutions require you to deposit the money within 60 days of opening the account (which you'd want to do anyway to avoid being taxed on the withdrawal from your old account). All you need is for the account to remain open and fully funded with the initial bonus amount for at least 12 months, or else the bonus will be reversed.

You can often roll over assets "in kind," meaning the stocks, bonds, or mutual funds you own in your 401(k) are transferred directly to the new rollover IRA; however, some assets, such as proprietary funds or company stock options, might have to be liquidated.

Below are four financial institutions offering particularly nice cash bonuses for rolling over your retirement account. This listing is current as of August 22, 2021, but terms and conditions change all the time. So think of this list as a general reference guide for incentives out there and how they work. Of course, when considering one of these places—or any specific institution—be sure to read the fine print in the contract before you set up an account.

Also, be sure to open the right type of IRA: If you have a traditional 401(k) plan, you'll want to open a traditional IRA; if any of your 401(k) is set up as a Roth, those funds should go to a Roth IRA. Some people will need to open both types of accounts.

TD Ameritrade

If you are interested in rolling assets into a self-managed trading financial institution, TD Ameritrade would be an excellent option. The company offers multiple different thresholds for its bonus program besides providing the most significant cash bonus out of all the IRA rollover incentive programs in the industry.

At a minimum, if you roll at least $10,000 or more into an IRA, you qualify for 90 days of commission-free trades (up to a maximum of 300 trades). If you have a balance of $1 million or more from your 401(k) or retirement plan to transfer, TD Ameritrade will add a bonus of $1,500 into your new rollover IRA. Below are the threshold levels and corresponding cash bonus amounts. Each of these bonuses comes with commission-free trades.

  • $2,500 cash bonus for a deposit of $2 million
  • $1,500 cash bonus for a deposit of $1 million or more
  • $700 cash bonus for a deposit of $500,000 or more
  • $350 cash bonus for $250,000 or more

Charles Schwab

Refer a friend who wants to roll over their account, and they will earn some bonus cash thanks to your referral. Receive a referral code from a friend or family member. A few basic rules apply, you have to be a new customer, and the net deposit has to be made within 45 days of joining Schwab.

If someone refers you to Charles Schwab, it will pay a cash bonus if you deposit a qualifying amount into either an IRA or a Schwab retail brokerage account, including enrolled in Schwab-sponsored investment advisory programs, such as Schwab Managed Portfolios, Intelligent Portfolios, Schwab Managed Account Select, and Connection, as well as Schwab Private Client programs.

Below is the list of the qualifying asset deposit levels and cash bonus amounts.

  • To receive a $100 bonus, deposit $25,000-$49,999
  • To receive a $300 bonus, deposit $50,000-$99,999
  • To receive a $500 bonus, deposit $100,000 or more

Ally Bank

Ally Bank is a popular choice for customers seeking higher-than-average yields on certificates of deposit (CD) and savings accounts, enhanced by the fact that the online bank charges no maintenance fees on most accounts either. Ally is offering cash bonuses for new self-directed trading accounts, including rollovers from a 401(k). The deadline for opening an account is Sept. 30, 2021.

The minimum qualifying deposit is $10,000, which will earn you $100. For those with more to invest, Ally is offering as much as $3,000 if you deposit $2 million or more. Other offers on new deposits include:

  • To receive the $100 bonus, deposit or transfer $10,000-$24,999.
  • To receive the $250 bonus, deposit or transfer $25,000-$99,999.
  • To receive the $300 bonus, deposit or transfer $100,000-$249.999.
  • To receive the $600 bonus, deposit or transfer $250,000-$499,999.
  • To receive the $1,200 bonus, deposit or transfer $500,000-$999,999.
  • To receive the $2,000 bonus, deposit or transfer $1 million -$1,999,999.
  • To receive the $3,000 bonus, deposit or transfer $2 million or more.

E*TRADE

E* TRADE is a long-standing online broker offering users easy-to-navigate platforms. Customers can use this broker using a computer or mobile device. Until August 31, 2021, E*TRADE is offering up to $3,000 to new customers who open and fund a new retirement or brokerage and fund it within 60 days of opening the account. The minimal deposit for a new account is $10,000, and to receive the bonus, customers must use its promo code "BONUS21" and fund the account by the end of August.

The terms are:

  • $50 bonus requires a deposit or transfer $10,000-$19,999.
  • $100 bonus requires a deposit or transfer $20,000-$24,999.
  • A $200 bonus requires a deposit or transfer $25,000-$99,999.
  • $300 bonus requires a deposit or transfer $100,000-$199,999.
  • $600 bonus requires a deposit or transfer $200,000-$499,999.
  • $1,200 bonus requires a deposit or transfer $500,000-$999,999.
  • $2,500 bonus requires a deposit or transfer $1 million-$1.49 million..
  • 3,000 bonus requires a deposit or transfer $1.5 million or more.