These days, it’s less common for people to stay with just one employer for an entire career. As a result, you’ll probably need to answer the question of what to do with your 401(k) as you move from one job to another more than once. Fortunately, you have options to consider:

  • Leave your 401(k) with your former employer.
    • This is the easiest route, but there are drawbacks.
    • You could end up with money in several different 401(k)s, making retirement more complicated.
    • Paying 401(k) fees for two or more plans is costly. Consolidation may save you money.
    • Know your plan’s rules. Former employees may be charged higher fees.
  • Roll it over to your new employer’s plan.
    • Most employer retirement plans accept rollovers.
    • Make sure the rollover goes directly to the new plan, and not to you.
  • Roll it over to an IRA.
    • An IRA could provide more investment choices.
    • You can choose a traditional or Roth IRA, but choosing a Roth IRA would mean you’ll need to pay income taxes at the time the funds are rolled over.
  • Cash out.
    • You will be required to pay taxes on the money—20% will immediately be deducted before you receive it, and you may need to pay more taxes depending on your tax bracket.
    • If you are under 59½, you will also have a 10% penalty on the full amount of the money.
    • If your balance is less than $5,000, your employer may have the right to choose to cash you out.

It’s essential that you carefully weigh your options, including expenses, tax consequences, and the full effect that changing jobs will ultimately have on your retirement savings. If you’re not sure that you’re making the best choice, consult a financial professional to help you take the appropriate steps for your specific circumstances.

 

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