Money Moves After a Job: A Teacher’s Guide to What to Do With Your 401(k)

Feeling overwhelmed about your 401(k) after leaving a teaching job? You’re not alone.

Changing districts, moving to a private school, or retiring after years in the classroom brings a flood of questions: should I leave my 401(k) where it is, roll it over, or cash it out now? Each choice affects your long-term financial wellbeing and peace of mind — and many teachers make costly mistakes under pressure.

Quick promise: this guide gives a practical, classroom-ready checklist, scripts for HR and benefits counseling, real-world examples, and 2026 trends to help you choose the best 401(k) option for your next chapter.

Why this matters now (2026 context)

Retirement-account rules and plan features have changed since early 2020s. By 2024–2026 many school districts and vendors adopted digital rollovers, expanded in-plan Roth options, and better fee transparency. Financial wellness programs in education now commonly offer one-on-one counseling, and robo-advisors are available inside more plans.

That means you can do smarter, faster rollovers — but also see more tempting “push” solicitations. Knowing your options and a clear decision path reduces stress and protects your retirement savings.

High-level options for your 401(k)

When you leave a job, most plans offer four main paths. Below are the pros and cons tailored for teachers.

• Leave it with your former employer’s plan
• Roll it over to your new employer’s plan
• Roll it over to an IRA (traditional or Roth)
• Cash out

Option 1 — Leave it with your former employer

Pros:

• Continuity: no transaction required; investments keep growing.
• ERISA protection: employer plans generally have strong federal creditor protection.
• Access to plan-specific low-cost institutional funds or annuity options offered only in that plan.

Cons:

• Limited control: you can’t make new contributions and loan rules change.
• Potentially higher fees than an IRA or a better employer plan.
• Plan communication and online access can be inconsistent after you leave.

When to consider it: your former plan has unusually low fees, in-plan advice you value, or an employer-sponsored annuity you want to keep. Also useful if you expect to return to the same district.

Option 2 — Roll it to your new employer’s plan

Pros:

• Simplicity: consolidation keeps your retirement savings in one account and may allow continued contributions and loans.
• May preserve access to low-cost institutional share classes.

Cons:

• New plan could have higher fees or fewer investment choices.
• Some plans don’t accept rollovers or allow after-tax/Roth rollovers.

When to consider it: your new plan has competitive fees and you prefer managing one employer account.

Option 3 — Roll it to an IRA

Pros:

• Greater investment choice (ETFs, mutual funds, managed accounts, ESG options).
• Often lower fees if you pick a low-cost custodian.
• Better control for retirement planning: tax-loss harvesting, Roth conversions, and consolidation of multiple accounts.

Cons:

• IRAs have different creditor protections than employer plans — this varies by state.
• Rolling pre-tax 401(k) to a Roth IRA creates a current-year tax bill if you convert.

When to consider it: you want more investment control or plan to do partial Roth conversions for tax diversification.

Option 4 — Cash out

Pros:

• Immediate access to funds for urgent needs.

Cons (major):

• Taxes and penalties. If you’re under 59½, distributions typically face income tax plus a 10% federal early withdrawal penalty (exceptions exist). State taxes may apply.
• Loss of future tax-deferred growth — taking $50,000 today could be equivalent to hundreds of thousands in future retirement value.
• Potential to disqualify for financial aid or increase taxable income.

When to consider it: only in urgent, last-resort financial hardship when no other options exist — and ideally after speaking with a benefits counselor or tax advisor.

Common teacher scenarios and recommended paths

Here are three classroom-ready case studies you can use in staff meetings or one-on-ones.

Case study A — Mid-career teacher switching districts (age 42)

Balance: $45,000. New district offers a 403(b) with low-cost target-date funds. Current plan fees are moderate.

Recommendation: roll over to the new employer plan or to a low-cost IRA. Consolidate for simplicity, keep an eye on fees, and consider opening a Roth IRA for future tax diversification.

Case study B — Teacher retiring this year (age 62)

Balance: $180,000 and eligible for a defined benefit pension (TRS).

Recommendation: roll over to an IRA for control and distribution flexibility, or leave with employer if they offer a highly competitive annuity option. Coordinate with your pension counselor and plan admin on RMD timing and tax planning.

Case study C — Short-service teacher taking a career break (age 28)

Balance: $5,200.

Recommendation: roll it over into an IRA or into the next employer’s plan. Don’t cash out — small balances compound significantly over decades.

Tax traps and penalty rules every teacher should know

• Withholding on cashouts: If you take a distribution and don’t roll directly, plans often withhold 20% for federal taxes. You might still owe more at tax time.
• 10% early withdrawal penalty: Applies if under 59½, with limited exceptions (some public-plan or 457-plan exceptions exist). Check your plan type (401(k), 403(b), 457(b)) and your state rules.
• Separation-age exception: For 401(k) plans, if you separate from service in or after the year you turn 55, penalty may not apply. This is specific to employer plans, not IRAs.
• Loan acceleration: If you have a plan loan, leaving employment often triggers immediate repayment or taxation of the outstanding loan balance.
• Roth conversions: Rolling pre-tax money into a Roth creates taxable income in the year of conversion but offers tax-free growth and withdrawals later. Consider partial conversions over years to manage tax brackets.

Actionable 7-step checklist (classroom-ready)

Follow this when you know you’ll leave or retire. Print it for HR meetings or share with colleagues.

1. Get the facts: Request your plan summary, current balance, investment lineup, fee disclosure, vesting schedule and loans from HR/plan admin.
2. Check employer match vesting: Confirm whether you’re entitled to employer contributions and whether any vesting cliff applies.
3. Compare options: Use a simple spreadsheet: fees, investment choices, creditor protection, Roth options, loan rules, and ease of rollover.
4. Decide where to move money: If rolling over, choose a direct rollover to an IRA or new plan to avoid withholding and immediate taxes.
5. Coordinate timing: Don’t let HR rush you into a quick cashout. Ask for 30 days to decide and request written plan options.
6. Update beneficiaries: After any rollover or distribution, verify beneficiary designations on the receiving account.
7. Talk to a pro: Use your district’s benefits counseling or a fee-only planner with fiduciary duty for complex situations like divorce, pensions, or estate planning.

Scripts and templates for benefits counseling and HR

Use these in your staff room or when emailing HR.

To HR (email):

Subject: Request for 401(k)/403(b) Account Info and Options
Please send my account balance, plan summary, fee disclosures, vesting schedule, and whether the plan accepts rollovers. I’d also like a copy of the distribution and loan policy. Thank you.

To a benefits counselor (meeting script):

I’m leaving on [date]. I want to compare leaving the account, rolling to my new employer, and rolling to an IRA. Can you explain fees, investment options, and penalties for each path? I’m also considering partial Roth conversions—what would that look like?

Advanced strategies for teachers (when to use them)

• In-plan Roth conversions: If your plan allows, converting pre-tax dollars to Roth inside the plan can be cleaner and create future tax-free income. Use if you expect higher taxes later.
• Conversion ladders from IRA to Roth: Spread conversions over low-income years to reduce immediate tax impact.
• Consolidate for simplicity: Roll multiple small accounts into one IRA to simplify rebalancing and fee monitoring.
• Use low-cost ETFs and target-date funds: Many teachers succeed with a low-cost core-satellite approach: a target-date fund for most holdings plus a small allocation to an ESG fund or bond ETF.
• Protect assets: If you’re in a state with limited IRA creditor protection, you might prefer to keep money in an employer plan that has ERISA protection, particularly if you work with grants or have litigation exposure.

What’s new in 2026: trends teachers should watch

• More plan providers now offer automated, digital rollovers and “push” transfers that finish within days — but always confirm the receiving account and review fees.
• Financial wellness for educators expanded; many districts provide at least one free hour of fiduciary advice at separation or retirement.
• Roth and after-tax features are more common inside plans, enabling partial in-plan Roth conversions to be executed without leaving the plan.
• Fee transparency rules and robo-advice inside plans are increasing — leverage these tools but check their costs and investment track records.

Simple math: why cashing out usually costs you

Example: you cash out $20,000 at age 35. Assume 24% combined federal+state tax effective rate and 10% early withdrawal penalty. Taxes and penalties immediately take about $6,800, leaving $13,200. If you instead roll that $20,000 into an IRA and it grows at 6% annually for 30 years, it becomes about $115,000. After taxes in retirement (assume 15% effective), you still keep ~ $98,000 — far more than the $13,200 cashout.

Mindfulness and decision hygiene

Financial decisions made under stress can be costly. Treat your 401(k) decision like a lesson plan: prepare, gather materials, consult experts, and give it time.

• Pause before action: Avoid immediate cashouts. Take a 48-hour cooling-off period.
• Use checklists: Follow the 7-step checklist above to prevent overlooked details.
• Ask for help: Use your district’s benefits counseling or a fee-only planner with fiduciary duty.

Final checklist before you sign anything

• Did you confirm the exact plan type (401(k), 403(b), 457(b))?
• Did you request a direct rollover to avoid mandatory withholding?
• Have you checked for outstanding loans and how they’re treated?
• Did you compare investment options and fees between your choices?
• Have you updated beneficiaries on the target account?
• Did you consult a tax advisor if considering a Roth conversion or cashout?

Takeaway: protect your long-term financial wellbeing

For most teachers, the best move is to avoid an impulsive cashout. Rolling directly into an IRA or a new employer plan preserves tax-deferred growth and protects your future. Use 2026's improved digital tools and district counseling, but don’t skip the fundamentals: check fees, confirm protections, and plan taxes ahead of time.

Want a printable one-page handout to share with your faculty or a ready-to-send HR email tailored to your district? Click the CTA below to get the classroom-ready resources and a step-by-step rollover worksheet designed for teachers.

Call to action

Download the free teacher 401(k) handout and 7-step rollover worksheet, or book a 20-minute benefits-prep call with our advisor network to walk through your specific situation. Make confident money moves — so you can focus on what you do best: teaching.