Whether you are changing jobs, have been furloughed, or find yourself laid off and looking for work, you have a variety of options regarding your old 401(k) plan. Each option has some important considerations for you to weigh before deciding what to do. Many of these options are available for 457 or 403(b) plans, too.
Rollover to an IRA
If you roll your old 401(k) plan over to a new IRA account, you have a lot of flexibility in your investment selection and investment options. You can invest in a wide range of mutual funds, stocks, bonds, ETFs, FDIC-insured CDs, and annuities. An IRA still gives you the ability to grow your investment in a tax-deferred retirement plan. This is also a great opportunity to consolidate multiple retirement accounts, creating one IRA account based on your investment goals and time horizon for retirement.
Rollover to a new workplace plan
If you have started a new job, you may be able to roll your old 401(k) over to your new employer’s plan. You will likely, however, be limited by the new plan’s investment options. Some 401(k) plans may allow you to also consolidate your other IRA accounts into the new plan, if desired.
Stay in your old workplace plan
Some 401(k) plans will allow you to stay invested in them after you leave the company. Your tax-deferred investments will still have growth potential, but you will no longer be able to contribute to the plan and may have limited withdrawal options. Your investment options may also be limited to your old workplace’s investment choices.
Cash out your old plan
Typically, it is not advised to take money out of your retirement plan unless there is no other option or you are facing an emergency that requires cash. You could face steep penalties and tax consequences by cashing out a retirement plan. If you withdraw from your 401(k) before age 59½, that money will likely be subject to both ordinary income taxes and a potential 10-percent early withdrawal penalty.
- How the rollover is done
There are strict rules surrounding how a rollover is done and the timeframe during which it has to take place to avoid taxable events and penalties.
- Find out your 401(k) rules
When considering staying in a 401(k) plan or rolling over into another one, you should know the plan’s options and limitations.
- Compare fees and expenses
Identify the fees and expenses of your choice to consider the long-term impact of your selection.
- Potential tax impacts
Your choices might have some steep tax implications for you so be sure you understand your options.
Each person’s situation is different so it is critical to carefully review how your choice could impact your savings goal and tax consequences. Speak with a Union Bridge Capital advisor for an unbiased review of your unique situation and gain clarity on your choices.
Schedule your 401(k) consultation now. We can speak with you over the phone or meet online to discuss the pros and cons of each option with you.