If you're changing jobs or about to enter retirement, it’s important to consider what you should do with your hard earned 401(k) savings.
There are four common 401(k) rollover options when leaving a job. Each has its advantages and requirements depending on your specific situation. Once you have a feel for what may work best, consult your financial advisor to get started.
- Leave your money as is
If you like the investment choices of your previous employer’s 401(k) plan, you can choose to leave your money where it is. Make sure you assess the features and choices of each qualified plan to see which one is best for you.
- Transfer money from a former plan to a new employer plan
This option helps keep what you've invested tax-deferred and avoids penalties. It also consolidates your qualified plan savings for more control and convenience. Be aware that this is not an option if you intend to retire and that the distribution rules of each plan can differ.
- Roll money directly into an IRA
By rolling your employer-sponsored plan savings into an IRA, you’ll have more control and freedom over investment choices. This option will also help keep your assets invested tax-deferred as you continue to invest. Pay close attention to distribution rules, which could differ from plan to plan.
- Cash out
In some instances, you may need access to cash immediately. It’s important to know that if you do intend to take the cash, you’ll face a 10% penalty for withdrawals before the age of 59½. You’ll also be responsible for federal and state income taxes on any distributions at that time.