What to Do with a 401(k) When You Leave Your Employer

What to Do with a 401(k) When You Leave Your Employer

 

For many Americans, their 401(k) is their largest investment account—and the main source of income they’re counting on for retirement. But when you leave your job, what happens to that money? What’s the best move to keep your savings protected and growing?

The wrong decision could cost you thousands in taxes, penalties, or missed investment opportunities. In this guide, we’ll break down everything you need to know about your 401(k) after leaving an employer—including vesting rules, rollover options, and tax implications—so you can make the best choice for your financial future.

Let’s go over your options, the pros and cons of each, and how to roll over your 401(k) the right way—without triggering unnecessary taxes or penalties.

Step 1: Check Your Vested Balance

Before making a move, the first thing you need to do is determine how much of your 401(k) actually belongs to you.

Understanding Vesting

Your 401(k) balance is split into two parts:

1. Your Contributions – The money you contributed from your paycheck. This is 100% yours, no matter what.

2. Employer Contributions (Match or Profit-Sharing) – This money may be subject to a vesting schedule. If you leave before you’re fully vested, you lose part (or all) of the employer contributions.

How to Check Your Vested Balance:

 

  • Get your latest 401(k) statement – It will show vested vs. unvested balance.
  • Review your company’s vesting schedule – This is outlined in your Summary Plan Description (SPD).

Know what you’re walking away with – Unvested employer contributions do NOT transfer when you leave.

Example: If your employer has a three-year vesting schedule and you leave after two years, you may only keep 66% of the employer match. If you leave too soon, you could be walking away from thousands of dollars in unvested money.

Once you know your true balance, you’re ready to decide where to move your funds.

 

Step 2: Weigh Your 401(k) Rollover Options

When you leave your employer, you have four main choices for handling your 401(k). Let’s go through each one.

Option 1: Leave Your 401(k) with Your Old Employer

Some people leave their 401(k) behind at their old job because it seems like the easiest choice. But in most cases, this is a mistake.

 

Cons of Keeping Your 401(k) at Your Old Job:

  • High fees – The average small business 401(k) charges 1.5% in fees, which could cost you thousands over time.
  • Limited investment options – Most plans restrict you to mutual funds and target-date funds—often with subpar performance.
  • Lack of control – You can’t make quick investment decisions, and accessing funds requires employer approval.

Bottom Line: If you no longer work there, why should your money stay there?

 

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

If your new job offers a 401(k) plan, you may have the option to roll over your old 401(k) into the new one.

 

Cons of Moving to a New 401(k):

  • No financial benefit – Rolling over doesn’t give you extra employer matching.
  • Still limited investment options – You’re typically stuck with mutual funds or target-date funds.
  • More restrictive withdrawal rules – 401(k) plans often have tighter restrictions than IRAs.

Key Insight: Just because your new job has a 401(k) does NOT mean you should roll your old one into it.

 

Option 3: Cash Out Your 401(k)

You can withdraw your 401(k) as a lump sum when you leave—but this is one of the worst financial mistakes you can make.

Why Cashing Out Is a Disaster:

  • 10% Early Withdrawal Penalty – If you’re under 59½, you automatically lose 10% to the IRS.
  • Massive Taxes – Your withdrawal is treated as ordinary income, which could push you into a higher tax bracket. For traditional 401(k)s the entire distribution is taxable. For Roth 401(k) balances, only the earnings are taxable if distributed early.

Example: If you cash out a $100,000 401(k):

10% Penalty  -$10,000
30% in Taxes  -$30,000 (depends on your state/federal tax bracket)
Final Amount Received   $60,000

 

That’s 40% gone instantly.

 

When Cashing Out Might Make Sense:

  • You’re 59½ or older and ready for retirement.
  • You have no other financial options in an emergency.

For most people, this is the worst choice.

Option 4: Roll Over to an IRA

Rolling your 401(k) into an IRA gives you more control, lower fees, and better investment choices.

Why an IRA Is the Best Move for Most People:

  • Lower fees – No employer plan fees eating into your returns.
  • More investment choices – Could be a brokerage IRA for stocks/ETFs (like Schwab or Fidelity), or a Self-Directed IRA for real estate, private companies, and funds (like at Directed IRA).
  • Greater control – No employer restrictions.
  • Easier Roth conversions – Convert to a Roth IRA for future tax-free growth.

How to Rollover to an IRA Without Taxes or Penalties:

Use a direct rollover – This is critical to avoiding taxes. Your 401(k) provider should send the funds directly to your new IRA provider.

Do NOT take a check in your name – If the check is made out to you, it’s a distribution. You have 60 days to redeposit it into an IRA—or the IRS treats it as taxable income.

Some providers still mail checks – If they do, make sure it’s made out to your IRA provider, not to you personally.

 

Example: A 401(k) account owner requested a rollover, but the provider sent the check to the account owner. He didn’t redeposit it into an IRA and is now subject to taxes and penalties—and those funds can’t go back into a tax-advantaged account like an IRA.

 

Best Practice: Always request a direct rollover to the IRA provider to avoid a distribution, penalties, and taxes.

 

Key Takeaways

  • Check your vested balance first. Make sure you know how much of your 401(k) you actually own.
  • Leaving your 401(k) at your old employer is usually a bad idea – High fees and limited investment options make it less appealing.
  • Rolling your 401(k) into your new employer’s plan may not be the best move – You’ll still be stuck with high fees and limited investment options.
  • Cashing out your 401(k) is a terrible idea for most people under 59½ – Taxes and penalties could take 40% or more of your money.
  • Rolling over to an IRA is the best option for most people – It gives you lower fees, more investment options, and complete control over your retirement funds.
  • Use a direct rollover to avoid taxes and penalties – Never take a check in your name unless it’s your only option, and if you do, you must redeposit the same amount into an IRA within 60 days.

 

Are you interested in self-directing your IRA? Visit DirectedIRA.com and book a call with our team today!

BOI Requirement Does Not Apply to U.S. LLCs and Corporations: Final Interim Rule

BOI Requirement Does Not Apply to U.S. LLCs and Corporations: Final Interim Rule


On March 21, 2025, the U.S. Treasury Department issued a
final interim rule confirming that U.S.-based LLCs and corporations are exempt from the Beneficial Ownership Information (BOI) reporting requirement. This is a major win for small business and legally binding after a comment period. It clarifies that “domestic reporting companies”—LLCs and corporations formed in the U.S.—do not need to file BOI reports with FinCEN. It also clarifies that any U.S.-based LLC or corporation who has reported does not need to amend or update their filing. 

This is a significant development that brings clarity to what was previously a temporary pause put in place after a press release from the Treasury Department on March 2, 2025, where they signaled their intent not to enforce the BOI rules. Now, with this formal rulemaking, business owners can rely on an official exemption.

This ruling applies across the board, regardless of ownership structure—including entities owned by U.S. citizens or non-U.S. citizens—as long as the company itself is U.S.-based.

For those who already filed a BOI report, no further action is required. For everyone else, you do not need to file under this final interim rule.

Here’s what you need to know about this rule, the legal and political factors at play, and what it means for businesses moving forward.


What Is the BOI Reporting Requirement?

 

The BOI report, part of the Corporate Transparency Act (CTA), was designed to combat financial crimes by requiring businesses to disclose information about owners with 25% or more ownership or those with substantial control. The information was to be filed online with the Treasury’s Financial Crimes Enforcement Network (FinCEN)—a new requirement that had never existed for LLCs and corporations.

After extensive legal battles, a Texas court recently ruled the law unconstitutional. The U.S. Supreme Court took the case but suspended the Texas court’s ruling until it hears and decides the case later this year. With the Texas order removed, BOI reports were once again required, prompting the Treasury to extend the filing deadline to March 21, 2025. However, it has now taken an even more drastic step—declaring that it will not enforce the requirement at all.

Why Is the Treasury Not Enforcing It?

 

As of March 2, 2025, the Treasury Department stated it would not enforce the BOI filing requirement and would not impose penalties for non-compliance. The agency also issued its final interim rule stating that the BOI filing requirement will not apply to U.S.-based companies. Instead, the focus will shift to foreign entities suspected of financial crimes like money laundering and tax evasion.

The decision aligns with statements from President Trump, who called the BOI requirement burdensome for small businesses and labeled it a “Biden rule.” His administration’s stance suggests that the Justice Department will likely argue against the law’s constitutionality in the Supreme Court.

Legal and Political Uncertainty

 

Despite the Treasury’s announcement, the law is still technically on the books and could be brought back under rulemaking from a future administration. The Supreme Court is set to hear arguments on Texas Top Cop Shop v. Garland later this year, with a ruling expected in the fall. If the Court upholds the law, Congress may be forced to intervene and determine whether the executive branch has the authority to further delay or refuse enforcement.

At the same time, there is a bill pending in Congress that could eliminate the requirement altogether: Repealing Big Brother Overreach Act – This bill, currently under review, would fully repeal the BOI reporting requirement. Given the Treasury’s new stance and Trump’s public position in opposition to the BOI, this bill now has a strong chance of passing.

If either of these measures is enacted, it would permanently eliminate the BOI requirement—regardless of what the Supreme Court decides.


What Should Business Owners Do Now?


Given the Treasury’s announcement and final rule, here’s what business owners need to know:

  • You do NOT need to file a BOI report – The Treasury has now issued a final rule stating it will not enforce the requirement and confirms that it does not apply to U.S. LLCs and corporations.
  • If you already filed, there’s nothing to undo – Your information remains private within the Treasury’s records, similar to a tax return.
  • New LLCs and corporations do not need to file – This exemption applies to newly formed U.S. entities as well.
  • Be prepared for potential changes – If a future administration reverses course, or if Congress does not pass a repeal, the requirement could return.
  • You can still file voluntarily – FinCEN’s system is still operational, but filing is not required.


Final Thoughts

 

This is a major win for small business owners who saw the BOI reporting rule as an unnecessary compliance burden. However, the issue is not fully settled. The Supreme Court, Congress, and potential future administrations could all influence whether the rule is permanently eliminated or resurrected in some way. 

For now, the best course of action is to stay informed and avoid filing unnecessary paperwork, as the BOI filing does not apply to U.S. entities. If further action is required in the future, updates will follow, and we’ll be letting you know the latest developments and your options.


Key Takeaways

✔️ BOI reporting is NOT required – The U.S. Treasury has issued a final rule confirming no enforcement.

✔️ Supreme Court case still pending – The Court will rule later this year on whether the law is constitutional.

✔️ Congress may repeal the law entirely – Two bills in play could delay or eliminate the requirement for good.

✔️ If you already filed, no action needed – Your filing stands but no updates or corrections are required.

✔️ If you haven’t filed, hold off – You are not required to file under the new rule.

✔️ Stay informed – This issue is still evolving. Finality may come from the Supreme Court or Congress.

 

BOI Confusion? Get Legal Help You Can Trust

Whether you’re starting a new business or maintaining an existing one, KKOS Lawyers is here to help. Our team has filed thousands of BOI reports and advised clients across the country on entity formation, compliance, asset protection, and tax strategy.

👉 Contact KKOS Lawyers Today


Get expert legal guidance on LLCs, corporations, estate planning, and more—so you can grow your business with confidence and stay ahead of the rules.

For Company Compliance services, my company Main Street Business Services can help. We handle annual renewals, annual minutes, registered agency and offer privacy address services for clients in all 50 states and service over 10,000 small business owners. 

👉 Contact Main Street Business Services Today

 

BOIs Halted Again – 5th Circuit Reverses Itself on Dec 27, 2024

The BOI reporting requirement for LLC and corporation owners has been halted again by the 5th Circuit U.S. Court of Appeals. This time, it was the merits panel of the 5th Circuit whose ruling said the BOI requirement raises serious constitutional questions and effectively halted the BOI reporting requirement. The 5th Circuit is still hearing the case, and these orders on December 23 and December 27 were on emergency motions.

To be clear, the current status on December 27, 2024, is that the BOI reporting requirement is unconstitutional, and FinCEN cannot enforce it against anyone.

The BOI requirement was part of the Corporate Transparency Act and requires LLCs and corporations to file an information report about their entity to the federal government. This information included disclosing anyone who owned 25% or more of the company or had substantial control over the company. Over 30 million small businesses have been affected by this requirement, and the majority have not yet filed. Large corporations are exempt from filing under the large company exception ($5M or more in revenue and 20 or more employees). As a result, this requirement has mostly affected and burdened small businesses.

FAQs

What happens next?
The 5th Circuit still has the case and is scheduling briefings and oral arguments for a final decision. From there, the case can be appealed to the U.S. Supreme Court. The case is Texas Top Cop Shop, Inc. v. Garland.

What if I already filed a BOI?
There is nothing to do now, but you will not need to amend or update any filings if the company changes. BOI filings are private and are not publicly available.

Where did President-Elect Trump stand on this issue, and will that influence any appeal?
President Trump vetoed the original legislation that included the Corporate Transparency Act back in 2020. This legislation had numerous bills within it, including defense spending bills, and was a total legislative package called the National Defense Authorization Act of 2021. President Trump’s statement at the time did not mention the Corporate Transparency Act but instead mentioned defense spending. His veto was overridden by Congress, and the Act became law. It is possible that a Trump Justice Department and Department of Treasury will not pursue the appeal and may withdraw any efforts the Biden administration may make to overturn the nationwide injunction.

Should I still file my BOI by December 31, 2024, out of an abundance of caution?
You should consult your own legal counsel, but as the law stands now, it is unconstitutional, and the requirement cannot be enforced against you. That being said, many business owners are frustrated by the back and forth in the Courts and are deciding to just file rather than await the outcome and final decision of the case. FinCEN is accepting BOIs still on a voluntary basis.

How did the 5th Circuit Court of Appeals reverse itself?
The first order on December 23, 2024, was the Court’s response to an emergency motion from the Federal Government to remove the nationwide injunction. That motion was heard by the first available motions panel of three judges. That panel ruled that the BOI requirement was likely constitutional, removed the nationwide injunction, and BOI reporting resumed. However, the merits panel of the 5th Circuit eventually reviewed and overturned the three-judge panel with the latest December 27, 2024, order and said the BOI requirement raises serious constitutional issues. The 5th Circuit still has the case and is scheduling briefings and oral arguments. The case is Texas Top Cop Shop, Inc. v. Garland.

BOI’s Reinstated by Federal Appeals Court – New Deadline Jan 13, 2025

On December 23, 2024, the BOI filing requirement for LLCs and corporations was reinstated by the Fifth Circuit Court of Appeals. The Appeals Court overturned the federal district court ruling earlier this month, which struck the BOI filing requirement down as unconstitutional. The plaintiffs in the case, the National Federation of Independent Businesses, plan to appeal the ruling, but the appeals process will likely take months and may, in the end, result in a review and decision by the U.S. Supreme Court.

FinCEN, the federal government agency collecting BOIs, has extended the filing deadline for LLCs and corporations set up before 2024 from Jan 1, 2025, to Jan 13, 2025. Entities set up in 2024 have 90 days after their entity is established with the state to file their BOI. Entities set up in 2025 will have 30 days to file their BOI after their entity is established with the state.

Common FAQs

Who is required to file? All LLCs and corporations doing business in the U.S.

Are there any exceptions? There are 23 exceptions to filing, but most involve being federally licensed. The most common ones we see used by business owners and investors are the large company exception or the inactive entity exception. The large company exception applies if you have $5M or more in annual revenue and 20 employees or more. The inactive entity exception applies to entities established before 2020 that do not conduct business or hold assets.

Where do I file the BOI? The BOI can be filed at fincen.gov.

What information is included in the BOI?
The BOI report includes the name of the entity, EIN/Tax ID, address, and disclosure of anyone who owns 25% or more of the company or anyone who has substantial control of the company (e.g., President of a corporation, Manager of an LLC). Anyone who owns 25% or more or who has substantial control must have their information provided, including name, address, and a government-issued photo ID (e.g., passport or driver’s license).

Can someone file it for me?
Yes, our company Main Street Business Services handles BOI filings for its clients as part of its Company Compliance Service. You can learn more at MainStreetBusiness.com.

Where can I learn more?
Check out this video by Mat explaining the ruling and what to do here – YouTube – Fifth Circuit Court Reinstates BOI For LLCs and Corps!!

Self Directed IRA Strategies & 2012 IRA/LLC Legal Update

Many investors are aware of the opportunities that are available with self directed IRAs. This article highlights the strategies being used by self directed IRA investors and addresses some important issues and some recent cases regarding the IRA/LLC strategy.

As most of our readers are aware, a self directed IRA can be used to execute “alternative” investments such as real estate, precious metals, private lending, or non-publicly traded stock, and the investment returns receive the same tax favored IRA investment treatment we are all familiar with when investing our retirement accounts into stocks or mutual funds (e.g. tax deferred growth with traditional IRAs and tax free growth with Roth IRAs). One of the commonly used strategies by self directed IRA investors is commonly referred to as an IRA/LLC (aka checkbook control LLC). The idea of the IRA/LLC is that the self directed IRA invests its funds into a newly created LLC and in return receives 100% (unless there are partners or more than one IRA) of the membership of the newly created IRA/LLC. The IRA/LLC typically establishes an LLC bank account to hold the IRAs cash investment and this account is managed by the IRA owner or an advisor/professional third party. The IRA/LLC then executes the transactions on behalf of the IRA and holds legal title or ownership to the IRA/LLC assets on behalf of its IRA owner. In many instances, the IRA owner serves as the Manager of the IRA/LLC and performs administrative and investment oversight functions on behalf of the LLC such as signing contracts on investments, managing the IRA/LLC checking account, and receiving income and paying expenses on behalf of the IRA/LLC and its investments.  There are lots of rules, such as the prohibited transaction rules, that an IRA owner needs to be aware of before investing their retirement account with an IRA/LLC and we routinely advise clients on these laws and issues. For example, the IRA and the IRA/LLC cannot make a transaction with someone who is prohibited to the IRA such as the IRA owner itself or his spouse, children or parents. See IRC § 4975. This would prohibit the IRA from purchasing a rental property from the IRA owner’s father.

The original case where the IRA/LLC concept was permitted by the U.S. Tax Court is known as Swanson v. Commissioner, 106 T.C. 76 (1996). In this case an IRA owner established a corporation that was 100% owned by his IRA and which the IRA owner subsequently managed. The IRS challenged the investment into the corporation as a prohibited transaction and the Tax Court ruled that the investment was not prohibited. For many years, this was one of the few cases addressing the IRA/LLC investment structure whereby an IRA is the owner of 100% of a newly created company. However, in 2011 and 2012 there were two additional cases whereby the IRA/LLC structure has been analyzed by the Tax Court and the structure was again recognized as a valid investment option for an IRA that does not constitute a prohibited transaction.

The 2011 case was Hellwig v. Commisioner, 2011-58 (U.S. Tax Court 2011). This case involved the creation of four 100% owned corporations by Roth IRAs. The IRS challenged the 100% corporations which were managed by the respective Roth IRA owners. In the Court’s ruling the Court referenced the prior ruling in Swanson and stated that a retirement plan may purchase 100% of a newly formed company because the company is not a disqualified person upon formation. Also, the Court further held that actions of the Roth IRA owner who was managing the Roth IRA owned corporation was not prohibited.

The 2012 case was Repetto, et al v. Commissioner, T.C. , Memo 2012-168 (U.S. Tax Court 2012). This case involved a husband and wife who owned a construction company. The husband and wife both created corporations owned 98% by their Roth IRAs and 2% by a partner. The Roth IRA owned corporations then performed services for the construction company owned by the Repettos. The Court ruled against the taxpayer in this case because the Roth IRA owned corporations were performing services to the Repetto’s own company when there was no legitimate business purpose for such services and the resulting transfer and payment for services. While the taxpayer lost the case, the Court’s ruling was very helpful in analyzing the IRA/LLC structure as the Court stated in its ruling, “ The [IRS] agrees that generally an entity in which substantially all of the interest is owned or acquired by a Roth IRA may be recognized as a legitimate business entity for Federal tax purposes. However, …the resulting payments [from the Repetto construction company to the Roth IRA owned corporations] were nothing more than a mechanism for transferring value to the Roth IRAs [since there was no legitimate business purpose for the services and payments].”

In summary, the IRA/LLC strategy has been recognized as a legitimate investment structure for an IRA in three cases before the U.S. Tax Court.  The strategy does not, however, allow the IRA investor to avoid the prohibited transaction rules or allow the IRA owner to unfairly shift income or assets from themselves personally to their IRA. While we’d never recommend a client use an IRA/LLC for these purposes it is important to understand that the IRA/LLC strategy is a valid and well recognized investment structure for your IRA and that your IRA is still subject to the prohibited transaction and income shifting rules.

For more information and a consultation regarding your particular situation, please call the KKOS law office at 435-586-9366.