Congratulations on your new job! Soon you’ll be fighting off the first-day jitters, filling out paperwork, and getting to know a new team of coworkers. But, before you finish packing it up at your old job, don’t forget to make a new plan for your 401(k).
There are several avenues you can take with your old 401(k). Let’s take a moment to review each of them while exploring why some choices may be smarter for your future financial freedom journey than others.
1. Roll it into a retirement account.
Your 401(k) savings doesn’t have to remain in a 401(k) account to avoid early withdrawal penalties from the IRS. In fact, you can open a retirement account instead. With a retirement account, you may have more investment options than a 401(k) since you’ll have more individual securities or mutual funds to choose from. A financial advisor can help you choose the right retirement account and guide you in the right direction of how to manage the rollover process.
2. Roll it over into your new employer’s 401(k) plan.
If your new employer offers a 401(k), you may want to consider rolling your old 401(k) into it, if that option is available. This is a great route to take if your new employer offers better investment choices or if you’re interested in keeping things simple since you’ll have fewer 401(k) statements to keep an eye on. Plus, you’ll have the opportunity to continue growing your savings without incurring a tax penalty.
3. Keep your old 401(k) where it is.
If you prefer the investment options of your old 401(k) program, you can leave your savings there. Just verify that there are no annual penalties for not actively contributing to the account, and don’t forget about the account in the future.
4. Avoid early withdrawals.
While it may be tempting to take out your savings and use it for present-day needs, taking your money out before the age of 59 (the early 401(k) withdrawal threshold set by the IRS) can lead to significant penalties and lost earnings.
Remember, the best choice for you depends on your personal situation, the options you’re offered by your employers, and where you are currently on the journey to Financial Freedom.
If you’re still unsure, connect with a financial advisor to help you make the right decision for your future.