What Should You Do With Your 401(k) When You Leave A Job?
Cash Out Your Retirement Account
While there is nothing that forbids you from taking the entire balance of your retirement account and depositing it into your personal checking account, you will be looking at a 10% early withdrawal penalty in addition to being taxed on the full amount. Further, you put a significant dent in your retirement savings.
However, there are certain situations, like the COVID-19 pandemic, where certain penalties may be forgiven. However, be sure to talk to a financial advisor before exercising this option to ensure you qualify.
Keep Your Retirement Account Where It Is
Depending on the amount of money you have in the account, as well as your portfolio’s plan, it may work best for you to leave your money where it is.
However, for most people (especially those who are apt to forget about their retirement accounts), you’ll be better off finding other options. This is especially true since you’ll be losing any company match you may have had. Many employer-offered retirement plans have little flexibility, so you’re better off finding a new home for your retirement savings.
Transfer Your Retirement Account Over To Your New Employer
Once you are enrolled in a new retirement plan, talk to your old plan administrator to begin the process known as a transfer. This ensures that you are covered from the risk of owing any taxes or missing a deadline. You can also do this through depositing the balance of your old account in the form of a check. However, this needs to be done within 60 days to avoid being taxed on the entire amount.
This can be a beneficial move if your new company offers a well-structured and cost-effective retirement plan.
Roll The Money To An IRA
However, retirement accounts with your employer aren’t your only option when it comes to retirement. You can also elect to start an IRA with the funds in your old retirement account. This process is called a rollover, and if it’s done properly, you won’t have to worry about distribution taxes.
In the vast majority of situations, the freedom that comes with this option makes it the most attractive option, no matter where you currently are on the road to retirement. The truth is the sky’s the limit when it comes to retirement planning, and it can be tough to wade through all the options. When you partner with Income For Life, you can be confident that we’ll help you make the best decision that will put you on the path to a successful retirement.