Switching jobs presents a new and exciting opportunity for personal development and professional growth. However, as with any change, challenges arise, and adjustments have to be made in the process. You have new decisions to make and what to do with your old 401(k) plan is an important point of consideration. It’s best not to make any hasty decisions; instead, weigh your options. Let’s look at some of your options.
Leave Your Cash in Your Previous Employer’s 401(k) Plan
If you have a minimum of $5,000 in your account, you have a legal right to stick with your former employer’s plan. Usually there is a set time period that you have to make a formal decision, and in some instances, it’s between 30 and 90 days. This way you can maintain the plan that you are familiar with, and if it’s a good one, you’ll still be happy. The disadvantages include restricted access to your funds, from a limited number of investment choice changes to your inability to make a withdrawal until you hit your retirement age.
Rollover Your Funds Into Your New Employer’s 401(k) Plan
Rollovers from other retirement plans are now very common with many 401(k), and it is wise to make contributions as you did with your old plan consistently. Consolidation can facilitate ease of managing your retirement account. You can keep a right eye on the performance of your account when it’s at your new employer, and you may have the opportunity to take advantage of a more attractive investment that was missing from your old plan.
Transfer Your Cash into an Individual Retirement Account (IRA)
IRA accounts are known for their flexibility and tax advantage and allow you a reasonable degree of control over how your retirement funds are invested. You have an extensive menu of investment options, from mutual funds, stocks and bonds, and you can invest in as many as you please- something that a 401(k) plan lacks. Another advantage of an IRA account is that you could save on fees since 401(k) plan fees are typically higher than outside investment plans.
Cash-out of Your Old 401(k) Account
This may be the last resort and something that you should give considerable thought to before making a decision. You’d have money that you can use right away, and there is no early-withdrawal penalty if leave your job at 55 or older. There’s a good chance that you’ll owe income taxes on your money, but worst of all, you could put a dent in your retirement savings.
Andrew Kyriacou can help you make the best choice about what to do with your 401(k) if you change your job, by providing you with valuable information and recommendations regarding the advantages and disadvantages of the different options available to you.