Your 401(k) Plan – What Are My Options?
By Blake C. Adams, MBA, CPFA
Changing jobs can be stressful. If you are switching companies or careers, making changes to your 401(k) plan is usually the last thing on your mind. Once life has settled down for you, here are a few thoughts about what to do with your 401(k) plan.
What Do I Do with My 401(k) Plan After Leaving a Job?
There is no right or wrong choice, and it depends on your unique life circumstances, but here are a few options:
You can choose to leave the account as it is.
Your previous 401(k) plan might allow for low-cost or competitive investments, and you might decide to leave your account with a former employer. If you move jobs frequently, remember to keep up with the company and keep track of your multiple accounts.
Roll your existing 401(k) into your new employer’s 401(k) plan.
Compare the quality of your previous plan with your new employer’s plan. Many individuals enjoy the simplicity of merging their 401(k) accounts, so they have all their money in one place. If you’ve already begun contributing to your new employer’s workplace retirement plan, the rollover should be facilitated by the new plan. If you have not yet contributed, contact your HR department for guidance and assistance.
Open a Traditional or Roth IRA
Investing in a Traditional or Roth IRA outside of your employer’s 401(k) plan might better suit your individual needs and could allow for different investment options. Comparing investment costs can help you determine if you want to roll your plan into an IRA. Be sure your financial professional has experience with rollovers and company stock because company stock will be liquidated when rolling over into an IRA.
Cash out your 401(k) and take a lump sum distribution
Life events might force you to withdraw early. If you choose to take your money out of your 401(k) plan before the age of 59 ½, you will pay early withdrawal penalties and income tax. In the long run, your financial future will be better off if you save for retirement and use your funds for retirement related purposes at the appropriate life stage.
No matter what you choose to do with your retirement account, be sure to set aside money for retirement. Consider seeking professional guidance to see if which is the best route for you and always, if you have any questions, let me know if I can help you in anyway.