What Should I Do With My 401(k) After Leaving My Job?
If you’ve left your job, you may be wondering what to do with your 401(k) account. Let’s go over your options.
Updated on Jun 17 2020
If you’ve left your job, you may be wondering what to do with your 401(k) account. Do you have to cash it, can you roll it over, or should you leave it be? Let’s go over your options.
Roll it over into your new employer’s plan
If your new place of employment offers a 401(k), you can rollover your old account. This means that your old account and those contributions will be deposited into your new account. If you’d prefer, you can have your contributions sent to you in the form of a check, with the caveat being that you must put that money into your new 401(k) within 60 days. If you fail to do this, you will pay income tax on your contributions.
Leave it where it is
Some prefer to leave their 401(k) where it is—with their former employer. If you have a large amount invested in your portfolio, it may be easier to just leave it be. Plans typically allow you to leave your 401(k) with your former employer if you have over $5,000 invested. This is an option if you want to set it and forget it (which may not be a good idea for your future investments). If you choose to do this, it’s recommended that you speak with a financial advisor.
Turn your old 401(k) into an IRA
It is becoming increasingly common that employers are not offering their employees 401(k)s. If this is the case, you can roll over your old 401(k) into an IRA. This allows you to do the research of where you would like to invest and plan accordingly for the future. While you are no longer restricted to the bank your employer offered, you need to familiarize yourself with how IRAs work, what the max contributions are, how taxes are affected, and more.
It is not recommended to cash out
While it can be enticing to cash out your 401(k), especially if you are young and retirement seems far away, it is not recommended to do so. This money will be heavily taxed, and you will also be subject to the 10% early withdrawal penalty. The money that you have in your 401(k) account will be much less than what you get a check for. Keep this in mind and never underestimate the importance of compound interest. Cashing out your 401(k) can devastate your retirement savings for the future.
When you leave your employer there are many unknowns. However, you have many options when dealing with your 401(k). If you’re unsure of the right option, contact a financial advisor who specializes in retirement planning.
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