It takes hard work to build your 401(k), and when you decide to switch jobs, it’s a hard decision on what you should do with it. There are options for you, which include:

  • Keeping the account with your former employer
  • Cashing out the 401(k)
  • Transferring the account into a savings plan with your new employer
  • Rolling over the money into an IRA (Individual Retirement Account)

Talking to a financial advisor is your best plan in choosing which option is best for you.

Keeping the 401(k) With Your Former Employer

If your account has been doing well, and you are happy with its results where it is, you may just want to leave the account with your former employer. Check with them before making this decision, as not all employers offer former employees to maintain their accounts with them.

If this is your choice, and it is allowed, you will want to check the account on a regular basis. Make sure you review your investments and keep your beneficiaries up to date. Keeping track of your investments will allow you and your financial advisor to monitor the account’s progress and ensure you remain appropriately invested in meeting your risk tolerance, time horizon, and goals.

Cashing Out Your 401(k)

There are several factors to consider when you choose to cash out your 401(k) account:

  • There is typically a 10% early withdrawal penalty and taxes required to pay when cashing out a 401(k) account. These amounts are in effect if you leave your old job before you turn 55 and are not 59 1/2 in age. These fees mean you will not end up with the full amount you have earned in your account. 
  • If you take the reduced amount from your 401(k), you will need to work longer to make up this amount and have lost the benefit of time.
  • If you cash out your 401(k), it will be considered as income on your year-end taxes. Having this added income will mean your local, state, and federal fees on the money will be charged.

Transferring your 401(k) to Your New Employer’s Plan

If your new employer has a 401(k) plan, you may have better investment options that could meet your financial goals when you transfer your account to their plan. It will also be easier for you to track your account’s performance when you have only one account instead of several accounts.

If you transfer your entire account into a new one, you will not be taxed or penalized. Talk with the plan administrator at your new job on how to perform this type of transfer.

Rolling Over Your 401(k) Into an IRA

When you roll over your account into an IRA, you are then the owner of your retirement savings. You are no longer a participant in a qualified plan and will have more investment options. Other benefits of owning your account are that you can consider different investment options and annuities. Talk with your financial advisor on the different options available for rolling over your account.

Moving your 401(k) is certainly more challenging than choosing a favorite coffee, and requires the help of a professional financial advisor. It is as big a decision as you made when you decided to change jobs and one you will want to put a lot of thought into. One of the most significant considerations is that regardless of how much you have in your 401(k), you want to make sure to keep it for its intended purpose.