Many working Americans saving for retirement are confronted at some point during their career with the question of what to do with the money they have in a 401(k) plan from a previous employer.

Wells Fargo and AARP, the nonprofit advocacy group for older Americans, offer clear words on the subject to help people sort this out and make informed decisions.

“The option that is best depends on your individual circumstances,” Wells Fargo wrote.

“You should consider features such as fees and expenses, services offered, investment choices, when distributions are no longer subject to the 10% additional tax, treatment of employer stock, when required minimum distributions begin, and protection of assets from creditors and bankruptcy.”

Wells Fargo explains options for people with existing 401(k) plans from former employers. Note that the financial services company often refers to QRPs (qualified retirement plans), an umbrella term for plans such as 401(k)s, 403(b)s, and governmental 457(b)s.

Wells Fargo outlines 401(k) distribution options

The following are four 401(k) distribution options Wells Fargo lists:

• Shift your savings into an Individual Retirement Account (IRA), which preserves the tax benefits and lets you choose from a wider range of investments than most employer plans offer.
• Keep the balance in your old employer’s plan, assuming the plan permits it, and let it continue growing tax‑deferred. Just be aware that you’ll be bound by that plan’s investment menu, withdrawal rules, and loan policies — and you’ll need to stay on top of statements and account details.
• Transfer the funds to your new employer’s retirement plan, if rollovers are accepted. This can simplify your financial life by consolidating accounts, especially if you’re comfortable with the investment options in the new plan.
• Cash out the account, understanding that doing so typically triggers income taxes and may add a 10% IRS penalty. Because the financial hit can be significant, it’s generally wise to withdraw only what you absolutely need while exploring other sources of liquidity.

(Source:Wells Fargo)

Wells Fargo and AARP explain options for managing money held in a former employer’s 401(k).

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AARP offers 401(k) savings perspective

AARP also suggests some considerations to ponder when figuring out the best options for what to do with money in a 401(k) when leaving a job.

“Maybe nothing at all,” wrote Jane Bryant Quinn for AARP. “Your instinct may be to take your money with you by rolling it into an individual retirement account (IRA). And a financial adviser may encourage you to do just that. (Not coincidentally, that adviser might then earn a commission or be paid a percentage of the money in your IRA each year.)”

“But just as there may be valid reasons to empty your 401(k), there may be equally valid reasons to leave your savings alone,” she continued. “It depends on the qualities of the 401(k) and your personal feelings.”

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• Dave Ramsey bluntly warns Americans on 401(k)s

Quinn offers the following questions and answers (paraphrased) to help people work through their priorities.

Do you want more choice?

Most 401(k) plans give you a curated lineup of a couple dozen mutual funds, often including a stable value fund that pays better rates than typical cash alternatives. An IRA opens the door to a far larger universe of investments, but the sheer volume doesn’t necessarily translate into better options — and IRAs don’t offer stable value funds.

How easy is it to tap your money?

Many former‑employer 401(k)s allow withdrawals whenever you need them, or at least on a monthly schedule. If your old plan limits access more than that, shifting the balance to an IRA could give you more flexibility.

Are you in your 50s and will you need the money?

Rolling a 401(k) into an IRA means any withdrawal before age 59-and-a-half generally triggers a 10% penalty on top of regular taxes. But if you leave your job in the year you turn 55 or later, you can take penalty‑free withdrawals directly from that employer’s 401(k), a benefit you lose once the money moves to an IRA.

Are you in legal trouble?

401(k) assets are broadly protected from creditors. IRA protections vary by state, so depending on where you live, your IRA may not offer the same level of shielding.

Do you like your plan?

If your current 401(k) offers low‑cost investments you trust and the plan is easy to manage, there’s no urgency to switch. Staying put is perfectly reasonable, and you can always revisit the decision later.

Related: Jean Chatzky sends blunt message to Americans on 401(k)s, IRAs