What Should You Do With Your 401(k) When You Change Jobs?
If you are moving to a new job, don’t forget about your 401(k) with your former employer. It’s important to know your options and make the most advantageous decision for your circumstances. So, what exactly are your options, and what are the pros and cons of each?
Leave Your 401(k) With Your Previous Employer
When you leave an employer who provided a 401(k), one option is simply to leave your money where it is – in the existing 401(k) plan with your former employer. Your money will continue to grow tax-deferred, and you’ll have access to it when you retire at age 59 ½ . However, you won’t be able to add funds to this account anymore, and if you have less than $5,000 in this account, your previous employer may choose to send you the money (or put it into an IRA).
Roll Over Your 401(k) to Your New Employer
You can roll your 401(k) over to your new employer’s plan if they offer one. Once you’re eligible (there might be a waiting period for joining your new employer’s plan), it’s simply a matter of filling out some paperwork to initiate the direct transfer. This option will not incur any penalties or taxes. Rolling over your 401(k) to your new job can also help you simplify your retirement savings plan.
Roll Over Your 401(k) Into an IRA
If your new employer does not offer a 401(k) or if you elect not to participate in the plan that they offer, you could open an IRA. You can still request a direct transfer in this instance. If you decide to use an indirect transfer, in which your previous employer sends your money in the form of a check to be deposited into your IRA, it’s important to note that this process is more complicated and can incur heavier taxes, decreasing the amount that makes it into your IRA.
Another option is to cash out your 401(k), but this is the most costly of the options, as you’ll owe income taxes on the full amount of the withdrawal from a traditional 401(k), and you’ll probably be subject to the early withdrawal penalty of 10%. While this might be an option if your need for cash is critical, it can significantly impact your long-term retirement savings.
If you’re experiencing a change in employment, schedule an appointment with the office. We’ll go over your options with you and help you find the most favorable course of action for your circumstances.
This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.
Before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Please view the Investor Alerts section of FINRA website for additional information.
Cetera does not offer tax or legal advice.
Getting the Most From Your 401(k)
March 22, 2022