Changing jobs can be an exciting, rewarding, and sometimes confusing time. Besides heading to a whole new environment, there are also some “house keeping” matters you will probably not think about right away.
One of those involves your 401(k). What should you, and can you, do with it when you change jobs?
Here are a few suggestions and ideas.
Leave it where it is: You don’t necessarily have to move your funds from your old employer’s 401(k) plan. They will grow tax deferred. This may not be the option with some 401(k) plans that have $5,000 or less vested since your previous employer may require you to move the funds.
This is also a good short-term option while you look for alternative plans and/or have to wait for a period of time before you can participate in your new employers plan.
Withdraw it: This generally isn’t an option you want to take unless you urgently need an influx of cash. You’ll be reducing your retirement savings and, depending on your age, you’ll have to pay a 10 percent penalty unless you qualify for an exemption.
Roll your money into your new employer's 401(k) plan: If you leave funds in your previous employer’s 401(k) plan, you may be apt to forget about it. Rolling it into your new employer’s plan allows you to consolidate your retirement funds, making it easier to manage.
Keep in mind that your new employer’s plan may not offer as many investment options or you may find that they don’t meet your needs as well as your previous plan.
Move your funds into an Individual Retirement Account (IRA): This may be the best plan if you want to have the most control over your funds. An IRA allows you to be in charge instead of having to adhere to your employer’s 401(k) plan rules.
Here are some advantages courtesy of Quicken.
“Unlimited investment choices instead of a small menu. Every 401(k) plan has limited investment options; by contrast, you have total freedom of choice in an IRA, which can be invested in as many mutual funds, stocks and bonds as you want.
Greater control over your investment expenses. 401(k) plan fees are rarely disclosed, and in many cases they're higher than what you'd pay for comparable investments outside the plan. Picking low-cost funds for your IRA can save you tens of thousands of dollars over time.
Greater freedom to name beneficiaries. The beneficiary of your 401(k) plan, by law, must be your spouse; you have to obtain a signed release from him or her if you want to name anyone else. With an IRA, you can name any beneficiary you wish.”
Contact Steel Valley Investment Group for more information
Before you make any decisions, be sure to contact Steel Valley Investment Group, so we can explain, guide, and listen to your goals. Our goal is to create a financial plan designed to meet the needs of you and your family today while building a bridge to ensure that future generations benefit from the legacy you have worked hard to create.
Be sure to contact us if you have any questions.
Opinions expressed are not necessarily those of Raymond James & Associates. Information contained was received from sources believed to be reliable, but accuracy is not guaranteed. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Past performance may not be indicative of future results. Changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James & Associates we are not qualified to render advice on tax or legal matters.