401k Options When Leaving Your Job

When leaving a job there are so many important considerations that thinking about what’s happening to your retirement fund is probably pretty low on the list. However, it’s imperative that you sit down and consider your options for what to do with your 401k. There are four options available to you: Cashing out your fund, leaving your plan where it is, moving to your new employer’s plan, or rolling your 401k into an IRA. Here are the implications for all of your options: Option 1: Take a Distribution This is the worst of the four options as it opens you up to hefty fees that end up eating away a lot of the money that you were entitled to. Along with paying the taxes that will then be due on the amount you’ll also face a 10% penalty fee for taking the money before you reach the age of 59 ½. Unless you’re desperate for the money this option shouldn’t be a serious contender.

Option 2: Leave the money in your old employer’s 401k plan Leaving your 401k right where it is might be a solid option for you if you are very happy with the investment options and fees of that particular plan. However, it’s important to remember that you will no longer be able to pay into this plan which could inhibit some earning potential. Additionally, it might become complicated for you to juggle multiple plans.

Option 3: Move to Your New Employer’s Plan Having a look at your new employer’s plan to see if the investment options and fees would be a good fit for you is helpful when you’re making your decision. Keeping your money in a 401k allows you to set your mind at ease by continuing to have someone to help administer your account. Another perk of rolling to a 401k is that come retirement age if you want to keep working you might be able to defer your payments and taxes until you decide you need the money which would not be an option with an IRA.

Option 4: Roll Your 401k into an IRA Moving your money into an IRA is a popular option for many people when leaving a job. Moving to an IRA gives you flexibility of when you wish to pay the tax on the money. If you roll to a traditional IRA you get to defer the tax payment until you start taking money, just like with a 401k, but by moving to a Roth IRA you pay the taxes up front. IRA’s also have a lot more investment options than a 401k. Instead of being restricted to what your company has chosen for your options to be you can invest in anything from mutual funds to real estate investment trusts. An IRA allows you flexibility and to be fully in charge of the decisions.

Founded in 1992, Jackson Wealth Management is an independent, fee-only investment advisor. Founder George P. Jackson has been the CEO/CIO of the firm since its inception with the goal of delivering value to his clients and his associates. 

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Advisory services offered through Jackson Wealth Management, LLC. 
Jackson Wealth Management, LLC is an affiliate of Jackson Retirement Planning, Inc.
Jackson Wealth Management, LLC is not affiliated with Triad Advisors, LLC.

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