Freelancer Retirement 101: What to Do With a 401(k) When You Leave a Job

Leaving a job and staring at your 401(k)? You’re not alone — and you don’t have to guess.

As a freelancer or gig worker moving out of traditional employment, the choices you make about your 401(k) can lock in years of retirement outcomes. Do you leave it with your old employer, roll it into an IRA, move it into a solo 401k, or cash out and put your life back together now? Each path has tax, fee, and protection trade-offs. This guide gives you a practical decision framework, step-by-step rollovers, and freelancer-tailored strategies that reflect the latest trends in 2025–2026.

Quick answers — what most freelancers should consider first

• Keep the account with your employer if their plan has institutional funds and low fees, and you don’t need access immediately.
• Direct rollover to an IRA is usually the easiest way to consolidate small accounts and widen investment choices.
• Rollover to a solo 401k is often best if you’re self-employed and want higher contribution room and loan options.
• Cash out is almost always the worst long-term choice because of taxes and penalties — only use for true emergencies.

How 401(k) balances behave when you leave a job

When you leave a job, your 401(k) balance doesn’t disappear — but what happens next depends on plan rules and federal tax law. Typical options are to leave the plan, roll it to an IRA, roll it to a new employer’s plan or a solo 401k, or take a distribution. The administrative steps are simple, but the consequences vary by fees, tax treatment, creditor protection, and your retirement timeline.

Your options explained (with freelancer-focused pros and cons)

1. Leave the funds with your former employer’s 401(k)

What it means: Many plans allow former employees to keep their balances if the amount is above a plan minimum.

• Pros: ERISA-level creditor protection, possible access to institutional-share classes with low expense ratios, minimal paperwork.
• Cons: Limited investment menu, potential plan changes or closures, you won’t be able to contribute further from self-employment earnings.

When to choose this: If the plan is high-quality and low-cost, and you expect to return to that employer or to an employer with a plan you plan to use later.

2. Direct rollover to a traditional or Roth IRA

What it means: The plan administrator moves the funds directly to an IRA you control, avoiding tax withholding.

• Pros: Huge investment choice (ETFs, low-cost funds), consolidation across jobs, flexible beneficiary rules, ideal for small balances.
• Cons: IRAs often have weaker federal creditor protection than 401(k)s in some states, and some IRA investments may have higher costs depending on custodian.

Action steps: Open the IRA with your chosen custodian first. Request a direct trustee-to-trustee rollover; avoid indirect rollovers unless you know the 60-day rules and withholding implications.

3. Rollover to a solo 401k (also called individual 401k)

What it means: If you freelance under a Schedule C, LLC, or similar self-employment structure, you can open a solo 401k to accept rollovers and make larger contributions.

• Pros: Higher contribution potential compared with SEP or IRA, potential for Roth and pre-tax splits, and many solo plans allow loans. ERISA-like protections may apply.
• Cons: Administrative paperwork once you cross certain asset or participant thresholds, and not as simple if you have employees (then it may not qualify).

When to choose this: If you want to dramatically increase retirement savings as a freelancer and have consistent self-employment income.

4. Cash out (take a distribution)

What it means: You withdraw your balance and receive cash.

• Pros: Immediate access to funds for pressing needs.
• Cons: Subject to ordinary income tax and generally a 10% early withdrawal penalty if you’re under 59½, plus you lose decades of tax-advantaged growth.

Use only in dire situations, and consult a tax professional first.

2026 trends that change the decision landscape

Two big trends through late 2025 and into 2026 are reshaping freelance retirement choices:

• Fintech consolidation and automated rollovers: More custodians now offer guided rollover tools, automated asset mapping, and fee analyzers that make moving small balances into IRAs or solo plans easier and cheaper.
• Growth in solo 401k adoption: As gig work continues to expand, custodians and payroll tools increasingly package solo 401k setup with bookkeeping and tax filing integrations, making the solo option more accessible.

Practical implication: The friction and cost of rolling into an IRA or solo 401k are lower than they were before 2024, so consolidation and choosing a self-directed path is often more attractive.

Decision framework — choose where to put your money

Run through this quick checklist before deciding:

1. Compare fees: Compare expense ratios and plan fees vs IRA alternatives.
2. Check investment options: Do you need access to broader ETFs, taxable fund options, or specialty assets?
3. Consider creditor protection: Keep 401(k) if you need stronger ERISA protection for a period.
4. Think about contributions: If you want bigger tax-advantaged contributions, solo 401k may be best.
5. Plan for access: Do you need to take a loan? Some solo plans allow loans; IRAs do not.

Three freelancer case studies

Case A — New freelancer, small balance ($5k–$20k): Roll to an IRA to consolidate and reduce account maintenance. Use a low-cost custodian and start systematic investments.

Case B — High-earning independent consultant: Open a solo 401k, roll in the old 401(k), and take advantage of higher employer+employee contribution limits.

Case C — Freelancer expecting to rejoin a company soon: Compare the old employer plan’s fees and institutional options. If the old plan is low-cost, leaving funds there can be fine short-term.

Step-by-step: How to do a direct rollover (avoid tax traps)

1. Open the receiving account (IRA or solo 401k) before initiating the rollover.
2. Request a trustee-to-trustee transfer from the plan administrator. This avoids the 60-day rule and mandatory withholding.
3. Confirm the check wording if the plan issues a check — it should be made payable to the receiving trustee, not you personally.
4. Verify timing and assets: If you hold employer stock or unusual assets, ask about in-kind transfer rules and tax consequences (net unrealized appreciation rules may apply for employer stock).
5. Keep paperwork: Save confirmation statements, transfer paperwork, and final plan statements for tax records.

Tax and legal pitfalls freelancers must avoid

• Indirect rollover withholding: If your employer issues the distribution to you, they may withhold 20%. You’ll need to make up the withheld amount within 60 days to avoid taxes and penalties.
• Early withdrawal penalties: Generally a 10% penalty applies for distributions before age 59½ (with exceptions). Avoid cashing out except for true emergencies.
• Creditor protection differences: 401(k) protections under ERISA can be stronger than IRA protections depending on state law. If you work in a litigation-prone field, this can sway your decision.
• Roth conversions and tax spikes: Converting to a Roth can remove future RMDs and create tax-free growth, but you’ll owe income tax on conversions — plan around low-income years.

Advanced strategies for freelancers

As a freelancer you can combine tools to supercharge retirement savings:

• Solo 401k + Roth conversions: Use a traditional rollover to a solo 401k now, and convert portions to Roth over several years when your taxable income dips.
• Backdoor Roth and after-tax contributions: If you exceed Roth income limits, a backdoor Roth via nondeductible IRA contributions can work — and some employer plans support a mega backdoor Roth via after-tax contributions, if your plan allows.
• Staggered rollovers: Roll small accounts into one IRA and leave a large employer plan if it has unique funds or loan features you might need.

Always run numbers with tax software or a CPA before doing large Roth conversions or complicated maneuvers.

Where to open accounts in 2026 — what to look for

Choose custodians that offer:

• Low-cost index and ETF access
• Simple trustee-to-trustee rollover tools and guided transfers
• Integrations with bookkeeping and tax filing integrations with tools you already use as a freelancer
• Clear support for solo 401k paperwork and plan documents

In 2025–2026 many brokers added rollover wizards and mobile-first plan setup, so prioritize user experience if you value simplicity.

Practical checklist — before you hit submit on the resignation form

1. Request a plan summary and fee disclosure from HR or plan admin.
2. Open the receiving account (IRA or solo 401k) and get custodian details.
3. Decide between direct rollover and leaving funds in plan.
4. Confirm loan rules — outstanding 401k loans may become due on termination.
5. Document beneficiary designations on the new account.
6. Keep plan statements and rollover confirmations for taxes.

Final checklist: When to call a human

Contact a licensed CPA, ERISA attorney, or fee-only financial planner if any of these apply:

• Your balance includes company stock with significant unrealized gains.
• You’re considering multi-year Roth conversions that would create a large tax bill.
• You have complex creditor or divorce concerns where protection rules matter.

Real-world note: Many freelancers I work with treat rollover decisions as part of their business setup. Consolidating old plans into one IRA and opening a solo 401k is a common first-year move — but timing and taxes matter. Start the process before tax season to make clean moves.

Quick recap — what to do next

• Don’t cash out unless you must.
• Use direct rollovers to avoid withholding and the 60-day trap.
• Consider a solo 401k if your freelance income supports higher contributions and you want loan features.
• Leverage modern fintech tools for low-cost rollovers and easier plan administration in 2026.

Call to action

Ready to decide? Start with our freelancer-friendly rollover checklist and a one-page email template to request your plan’s fee disclosure. Sign up for our weekly workflow for freelancers to get templates, calculators, and a vetted list of custodians that support solo 401k setup in 2026. If you have a complex situation, schedule a 30-minute consult with a CPA who specializes in gig-economy retirement planning.

Related Reading

• Freelance Economy News: Global Income Trends Report 2025-2026
• From Solo to Studio: Advanced Playbook for Freelancers Scaling to Agencies in 2026
• The Modern Home Cloud Studio in 2026: Building a Creator-First Edge at Home
• Killing AI Slop in Email Links: QA Processes for Link Quality
• Sleep Better: Best Small Bluetooth Speakers Under $100 to Pair With Aircooler White-Noise Modes
• Brew Your Way to Better Doner: Coffee Pairings for Kebab Night
• How to Build a Beauty Capsule for Weekend Trips (and the Pouches That Make It Easy)
• Best Practices: Governance Framework for Autonomous AIs Accessing Employee Desktops
• Sustainable Warmers & Natural Fillings: Why Wheat-Filled Heat Packs Are Trending for Travel