What Happens to Your 401(k) When You Leave Your Job?
There are several options you can take with your old 401(k) to make the most of what you’ve saved for retirement so far.
You’re seeking a new job or making a career transition. You’re updating your resume, preparing for interviews, taking a few online education courses, and applying for available positions online. As you submit applications, you start wondering, “What should I do with my old 401(k) plan?”
You can take several options with your old 401(k) to make the most of your retirement savings. Here are five tips to help you go further with your 401(k) savings while embarking on a new chapter in your life:
Keep your old 401(k) where it is, and don’t do anything.
This is the easiest option, especially if you prefer the investment options of your old 401(k) plan. Make sure you keep an eye on the account and see if there are any penalties for not actively contributing to the 401(k) account.
Roll it over into your new employer’s 401(k) plan.
Consider rolling over your old 401(k) if your new employer offers a 401(k) program. Rolling your previous 401(k) also helps you save time by consolidating your retirement plans. You’ll manage fewer 401(k) accounts and continue building your retirement savings without a tax penalty.
Roll over your old 401(k) into an IRA.
Instead of keeping your 401(k) savings in a 401(k), consider rolling over your funds to an Individual Retirement Account (IRA). Two benefits of this transition include continuing tax-deferred growth potential and more investment choices. You can pick an IRA trustee with various investment options, and you’ll be able to quickly move your money between trustees if you don’t have an option you’re looking for. Rather than withdrawing the funds and completing the rollover yourself, ask your FAIRWINDS Wealth Management financial advisor to help you initiate and manage the rollover to avoid early withdrawal fees. Keep in mind that IRAs may be subject to mutual fund fees or advisory fees, so it's important to understand the cost structure of your chosen investment options.
Don’t cash in your old 401(k) plan.
You might want to liquidate your previous 401(k) savings and use the funds for your current situation, like paying off debt or covering essentials. However, this option could prevent you from getting closer to your retirement goals. An early withdrawal of your 401(k) will include federal income taxes, a ten percent IRS early withdrawal penalty if you haven’t reached age 55, and any additional penalties charged by your 401(k) provider.
Speak with an advisor to weigh your options.
A financial advisor can help you weigh all the factors to make a confident decision to continue investing in your future.
Although there is more than one approach, remember that you’re in control of what you want to do with your 401(k) and the wealth you’ve built so far.
*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing involves risks, including loss of principal.
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