401(k) Rollover Mistakes to Avoid When You Switch Jobs

Changing jobs? One of the biggest financial decisions you’ll face is what to do with the 401(k) from your old employer. Many people think the next step is simple—roll it into an IRA. But the truth is, that isn’t always the best move. In fact, if you’re considering strategies like the backdoor Roth IRA, an automatic rollover into an IRA could cost you.

Here’s what you need to know about your options.

Option 1: Leave the 401(k) Where It Is

Sometimes the best move is no move at all. If your former employer’s plan has solid investment choices and reasonable fees, leaving your money there can be a smart strategy.

• Keeps your IRA balances “clean,” which matters for backdoor Roth contributions.

• Preserves strong federal creditor protection that 401(k)s enjoy.

• Gives you the option to roll into your new employer’s plan later.

Option 2: Roll the 401(k) Into Your New Employer’s Plan

If your new company allows roll-ins, this can be the ideal choice for professionals who want to keep future tax strategies open.

• Consolidates accounts so you’re not tracking multiple old plans.

• Keeps all pre-tax dollars inside a 401(k).

  
  

Option 3: Roll the 401(k) Into an IRA

This is still a good move in some cases—but you need to understand the trade-offs.

• Pros: More investment choices, complete independence from an employer, often lower fees if you choose well.

• Cons: Once you roll old 401(k) funds into an IRA, you may create tax headaches if you’re using the backdoor Roth IRA strategy.

Why Backdoor Roths Change the Equation

For high-income earners, a backdoor Roth IRA can be one of the most powerful retirement tools available:

1. You contribute to a traditional IRA (non-deductible).

2. You convert that contribution into a Roth IRA.

Here’s where the pro-rata rule comes in:

• The IRS looks at all of your traditional IRA balances when you make the conversion.

• If you’ve rolled old 401(k)s into an IRA, those pre-tax dollars get mixed in.

• Result? Your “backdoor” Roth conversion becomes mostly taxable — wiping out the benefit.

👉 That’s why leaving your 401(k) with a former employer or rolling it into a new employer’s plan can be so valuable. It keeps your IRAs free of pre-tax money, so the backdoor Roth works the way it should.

Strategy in Action

If you’re in your 30s, 40s, or 50s and building wealth:

• Considering a backdoor Roth: Avoid IRA rollovers. Stick with employer plans when possible.

• Not doing a backdoor Roth: Then an IRA rollover might make sense—just weigh the fees, funds, and protection features.

• Multiple old accounts: Consolidating into a new 401(k) can simplify your financial life while protecting tax strategy.

The Bottom Line

A 401(k) rollover isn’t just paperwork—it’s strategy. For job changers, the smartest choice may be to leave your 401(k) where it is or roll it into your new plan, especially if backdoor Roth IRAs are part of your tax picture.

📌 Before you move a dollar, let’s talk. We’ll review your old plan, your new options, and your long-term goals so you can make the decision that actually works for your future.

Let’s Review Your 401(k) Options