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Managing Your 401(k) When Changing Jobs

August 04, 2022

Managing Your 401(k) When Changing Jobs

If you are changing jobs for the betterment of your career, personal reasons, etc, something that is probably not at the forefront of your mind is the state of your 401(k) plan. We understand this thought process, but like with all financial matters, no stones should be left unturned, especially when your long-term financial wellness is on the line. It pays to include this money in your moving plans, even if you don’t have to deal with it right away. As a team of trusted benefits advisors, one of the points we will always drive home with our clients is to keep all of your financial possessions and assets accounted for! For today, we have compiled a list of the most probable scenarios for managing your 401(k) when changing jobs.

#1-Leaving Investments With Former Employer

If you have more than $5,000 invested in your current 401(k), a majority of plans will allow you to leave it where it is after you and your employer part ways. If you have a significant amount of money saved and are satisfied with the plan portfolio, then leaving it as is maybe a good idea. However, if you are likely to forget about it or are not impressed with investment options and fees, consider some of the other options that we are going to discuss today.

#2-Rolling It Over To Your New Employer

Once you are established in your new role with another company, and assuming they have their own 401(k) plan, look into the process of rolling over. Firstly, make sure that the new 401(k) is active and ready to receive contributions before you roll over your old account. When you are ready to make a move, you can elect to have an administrator of the old plan deposit the balance of your account directly into the new plan. The only thing required to put this in motion is for you to fill out some basic paperwork.

This process is known as a direct transfer, and it can save you the trouble of owing taxes or missing deadlines. Alternatively, account holders can have the balance of the old account distributed to you in the form of a check, which is colloquially known as an indirect rollover. In order to avoid paying income tax on the balance and the additional 10% penalty for early withdrawal, you must deposit the money into the new account within 60 days. A drawback of the indirect rollover is that your previous employer is required to withhold 20% of it for federal income tax purposes, and possibly for state taxes as well.

#3-Transferring The Funds To An IRA

If you are not moving to a new employer or if your new employer does not have a retirement plan, fear not, as you still have a good option. It’s possible to roll over your 401(k) into an IRA. Anyone going down this route will incur some heavy lifting, as IRA’s are opened and managed by that individual, through the financial institution of their choosing. Yet, the possibilities are limitless. Meaning, you are no longer restricted to the options enforced by your employer.

#4-Cashing It Out

Of course, cashing out your funds and cutting your losses is always an option too. Many may choose to take a lump-sum distribution, but our benefits advisors strongly caution against this tactic. Not only does it unnecessarily reduce your retirement savings, but you will also be taxed on the entire amount.

Hire The Professional Benefits Advisors: Saving Your Money Like A Pro With Bridge Benefits Group

When it comes to making an informed decision, there may be factors that are unique to your situation. The “best choice” looks different for everyone. When working alongside our benefits advisors, it won’t take long to discern what is in the best interest of your long-term, financial wellness. If you want to learn how to properly manage your 401(k)s and other investment accounts, contact us today to get started!

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.