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You’ve left your job, now what happens with your 401(k)?

You’ve left your job, now what happens with your 401(k)?

February 06, 2024

Leaving your current employer can be a big step. Maybe you are making a career change late in life, or maybe you’re taking a step up at another company. Whatever the reason you’re moving to a new employer,

 

As a prudent investor, you’ve saved a lot of money in your 401(k) managed by your previous employer. But now that you’ve left your previous job, what will happen to your retirement savings? That answer is actually up to you. Here are the four different options you have for your 401(k) that’s being managed by a previous employer.

Option 1: Leave your money where it is

Did you know that you may be able to leave your 401(k) exactly where it is even if you leave your job? Leaving your 401(k) will allow you to continue taking advantage of your employer’s plan and won’t require you to take any action of your own. This makes it the easiest option for your retirement plan.

 

Before you make this choice, first check with your previous employer and see if it’s even an option. Some employers require you to move your 401(k) after you terminate your employment.

 

Best if: You are happy with your previous employer’s investment plan.

Option 2: Transfer to another employer-sponsored plan

Does your new employer offer their own 401(k), 403(b), or other sponsored retirement account? If so, you may be able to transfer your existing 401(k) to your new employer-sponsored plan. This can make your life easier by consolidating multiple accounts, plus, you can take advantage of your new employer’s matching funds, if they’re offered. Just keep in mind that by making a transfer you will now be limited to the investment options offered in your new retirement plan.

 

Best if: You who want to take advantage of your new employer’s plan and matching funds.

Option 3: Roll it over to a retirement account

If you can’t keep money in your previous employer’s plan and you want more control over your investments, you might consider rolling your 401(k) over into an individual retirement account (IRA). An IRA can be opened at almost any brokerage and will give you complete control over your investment options while maintaining the tax-advantaged status of your retirement savings.

 

Best if: You want more control over your retirement investments

Option 4: Withdraw the money from your account

Remember, the money in your 401(k) is yours to do with whatever you’d like. So, you always have the option to cash out your retirement plan and take the money to invest somewhere else, buy a home, take a vacation, or whatever else you’d like.

 

Keep in mind, withdrawing from your 401(k) before retirement age will be costly. First, you’ll be required to pay ordinary income tax on your withdrawal balance. Then, you’ll likely have to pay a 10% early withdrawal penalty. 

 

Best if: You need the money today and can afford an early withdrawal penalty.

Take your time to make the right decision

It doesn’t matter whether you left your employer one day ago or one year ago; the money in your 401(k) is yours, and you should understand the options you have for the future. Don’t feel pressured to decide instantly. Consider all your choices, weigh the pros and cons, and make the decision that’s right for you.

 

Learn more about how we can support your retirement goals, or reach out to us directly to schedule a meeting or ask a question.