When leaving a current job for one reason or another, your 401(k) through the company is not directly tied to the current job. Leaving doesn’t result in it disappearing. However, there are some very specific money moves you need to make in order to safeguard your retirement savings. Here are a few of the best tips on what to do with your 401(k) when leaving a job.
Never Cash Out
One of the biggest blunders you can make with the 401(k) is to cash it out. The sudden windfall of money may feel like a desirable opportunity, but you’ll pay for it. Beyond paying taxes on the investment, you’ll also pay an extra 10 percent early withdraw penalty. You also miss out on the compounding interest you can make by keeping the 401(k) active.
Don’t Just Sit On It
You likely pay an annual fee of two or three percent on average. This means you’ll potentially see the money begin to decline without ever making a withdrawal. So make sure to look into available rollover options and compare the expense ratios to what your current fees are. Beyond this, look at the investment options. If you’re happy with the investment options of the current 401(k) and the fees are comparable to rolling it over, it may prove beneficial to stay put. But, always put in the research.
Consider the The Rollover IRA Option
In general, moving the money into a rollover IRA is the best option. The fees are usually lower, and you have additional investment opportunities. There are also more ways to maneuver around potential withdrawal penalties. For example, you can withdraw as a first-time home buyer, for college, health insurance, or when unemployed, without paying a penalty. These opportunities do not exist with a 401(k).
Find a Great Investment Advisor
Always talk with an investment advisor about the best options for you, personally.
No matter the current job, or where you’re moving onto, it’s important to protect your current 401(k). By taking advantage of these tips and suggestions, you’ll avoid financial penalties, reducing the amount you’ve amassed for your retirement or giving up the 401(k) in general. It may take a bit of planning ahead of time, but by following these steps, you’ll continue on your path toward a healthy retirement fund.
Tom serves as the Financial Consultant for Heritage Bank. In partnership with LPL Financial Services, he assists individuals, families and business owners with all aspects of financial planning including retirement.
LPL Financial Consultant • 678-284-3302 • [email protected]