Old 401(k): Your Options, Rollover Rules, and Company Stock

Tax year 2026  ·  Reviewed October 7, 2026  ·  By Nazim Lokhandwala

The four options

[1, 2, 3]

The 20% withholding trap

If the plan pays the money to you, it must withhold 20% for federal tax, even if you intend to roll it over. To defer tax on the full amount, you have to replace the withheld portion from other money within 60 days. IRS example: on a $10,000 distribution with $2,000 withheld, rolling over only $8,000 makes $2,000 taxable, plus a possible 10% additional tax. A direct rollover, trustee to trustee, avoids the problem. [1, 2]

If you owe a loan

When you leave a job with an unpaid 401(k) loan, the plan may reduce your balance by the loan amount. This "loan offset" can be rolled over by your tax return due date, including extensions, if it came from leaving the job or the plan ending. [4]

Exceptions to the 10% tax before 59½

Common ones: death, total and permanent disability, substantially equal periodic payments, medical expenses above 7.5% of income, and several newer exceptions (emergency expense up to $1,000, disaster, domestic abuse, birth or adoption). Two rules differ by account type:

• Employer plans only: leaving the employer in or after the year you turn 55 (50 for certain public safety workers). It does not apply to IRAs, and it applies only to the plan of the employer you left. [5]
• IRAs only: certain higher education costs, a first-time home purchase up to $10,000, and health insurance while unemployed. [5]

That 55 rule is a reason to pause before rolling a plan balance into an IRA if you might need the money before 59½.

Roth 401(k) balances

A designated Roth account can be rolled into a Roth IRA. Years you held the Roth 401(k) do not count toward the Roth IRA's five-year clock, so if you have no other Roth IRA, the clock starts fresh. [6]

Company stock and NUA

If your 401(k) holds your employer's stock, a special rule may apply. Net unrealized appreciation (NUA) is the growth in the stock above what the plan paid for it. If you take the whole balance from the employer's plans in one tax year, after a qualifying event such as leaving the job, you can have the stock distributed in kind. You pay ordinary income tax on the stock's original cost at that point, and the NUA is generally not taxed until you sell. When sold, gain up to the NUA is long-term capital gain no matter how long you held it afterward. [7]

• Rolling the stock into an IRA gives up NUA treatment. [8]
• You can choose to include the NUA in income right away instead. [7]
• It may not fit if the stock cost is high relative to its value, the stock is a small share of the account, or the one-year, whole-balance requirement is hard to meet.

Fees

The Department of Labor describes three types of fees: plan administration, investment (usually the largest), and individual services. In its example, a 1% higher annual fee cut the final balance by about 28% over 35 years. Compare fees in your old plan, new plan, and any IRA. [9]

Questions worth asking

• What do the old plan, the new plan, and an IRA each cost in total fees?
• Do I have an outstanding loan, and what happens to it if I leave?
• Might I need this money before 59½, and which account type gives me the exceptions I would need?
• Do I hold company stock that might qualify for NUA treatment?

Plan a conversation

General education, not individualized investment, tax, or legal advice. Discuss tax decisions with your tax professional, and recheck annual limits before using this page for another tax year.