My Employer Changed. What should I do with my 401(k)?
04/10/2021
Changing employers introduces a new dilemma for employees: what to do with the 401(k) account they had with their former employer. Generally, you have four options.
- Take the Cash: An important factor to consider under this option is taxes. When you take cash distributions from your 401(k), you may pay a lot in taxes and fees. This includes a 20% federal withholding tax and another 10% penalty if you are less than age 59 1/2.
- Directly Roll the Money Into an IRA: An Individual Retirement Account (IRA) is much like a 401(k), but it can remain independent of any employer. You may want to consider this option if you change jobs often or if a new employer does not offer retirement plans.
- Use the New Employer’s Plan: Rolling the money over directly from one employer to the next may help to eliminate IRS fees. Note that even if you are not yet eligible to contribute to your new employer’s retirement plan, you should be able to roll over your current 401(k).
- Keep the Old Plan: If you have at least $5,000 in your current 401(k), your employer must allow you to retain your 401(k) account if you want to. You can no longer make contributions to the account, but you can make decisions regarding the investment of your assets.
The money you accumulate through an employer's plan may become a primary source of income after you retire, so how you manage it today is important. The right approach depends on a number of factors. Contact us today at (800) 326-9486 if you’d like to discuss what option might be best for your situation.