Leaving a Job? Here Is What You Can Do With Your 401(k)
The average person changes careers five to seven times during their working years, but they don’t always take their 401(k) with them. And since workers in the Midwest have a high rate of access to retirement plans, you may have one or more 401(k) accounts out there that you are unsure what to do with, or even that you’ve forgotten about!
According to CNBC, 1 in 5 Americans have an inactive 401(k). If you're among them, you should know you have options to protect and grow your hard earned savings.
Option 1: Leave it where it is
This option involves the least amount of work because your task is… to do nothing! The old 401(k) provider will continue to manage the funds for a fee. It is important to look into these fees and investment options to avoid paying too much, and make sure the funds can be invested in a way that meets your goals. The downsides to this option: you can no longer make contributions, you could be paying too much for fewer investing options, and you now need to keep track of another account.
Option 2: Roll it over into a retirement plan with your new employer
To take advantage of this option, your new employer will need to accept incoming transfers or have a retirement plan available. This option allows you to keep your retirement funds in one account. This makes it easier to manage. As with the first option, you should double check the fees and investment options to make sure the new plan meets your retirement goals.
Option 3: Rollover the funds to an Individual Retirement Account (IRA)
An Individual Retirement Account gives you the most control over fees and investment options, and is the most commonly used option. You can open an IRA at many different financial institutions. You can also rollover multiple 401K accounts into the same IRA thus consolidating your retirement assets. If you are in a career or industry where you change employers often, this gives you an account you can transfer those funds into after each stretch of employment.
Option 4: Cash it out.
The dollar amount of the retirement account is going to determine if this is a good option. If you are under 59 ½, you will pay a 10% penalty as well as income tax (federal and state) on the amount distributed, leaving only a portion of your account actually going to you. You will also lose out on the growth potential of compound interest over a long period of time. It is generally recommended to keep retirement funds invested.
With plenty of choices available, you will want to select an option that aligns with your financial goals. If you are unsure how to navigate the 401(k) rollover process, you should know you’re not alone! Working with a qualified financial consultant can help you maneuver next steps and guide you to an option that fits you best. Additionally, your financial advisor can help with the legwork of rolling over your previous 401(k) plan. Maybe most importantly: they can help ensure that your hard earned savings are not *gasp* forgotten.
To speak with one of our advisors, you can get in touch with us online or give us a call at 1-800-899-8858. We look forward to serving you!
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