What To Do With Your 401(k) When You Change Jobs

Retirement PlanningRetirement Income

What To Do With Your 401(k) When You Change Jobs

Posted by COTO Insurance & Financial Services
3 months ago | March 4, 2019

Your grandparents might have worked for the same company for thirty years, and then retired with a comfortable pension or retirement savings. Today, those situations are rare. Not only are pensions rare, with the burden of retirement preparations falling more on workers’ shoulders; most of us tend to change employers a few times throughout our working years.

If you’ve enjoyed an employer-sponsored retirement plan up until this point, you might wonder what you should do when you change companies. In most cases, you have four options:

  • Cash out the funds in your old 401(k)
  • Leave your savings in the old 401(k) – you can’t continue contributing, but you can manage the money and allow it to keep growing
  • Move your funds into a new employer-provided 401(k)
  • Roll over the funds into another retirement savings or income option

In the vast majority of cases, it’s not a good idea to cash out your 401(k). You will be hit with a tax penalty for doing so, and you will be starting all over with your retirement savings. So unless your situation is very unique, we will assume that option is off the table.

As for your other choices… Leaving the funds in your old employer’s account does sometimes make sense. Perhaps your new employer does not offer a 401(k), the options aren’t nearly as good, or you’ve been laid off and you’re waiting for a future date to make this decision. Managing more than one 401(k) can be burdensome, but sometimes there are good reasons for doing so.

If you want your retirement savings all in one place, that leaves us with rollovers – either to your new employer’s 401(k), or to your own IRA. Choosing your new employer’s 401(k) makes sense in some situations, because it will be easier to manage your funds over time while enjoying certain benefits. But if that’s not an option, then there are other retirement savings and income options out there, and we can help you sort through those opportunities.

If you decide to roll over your funds, make sure to seek expert guidance on conducting the rollover correctly. Improperly conducted rollovers can trigger unfortunate consequences with regard to tax penalties, and we want to help you avoid that.

For more information on this topic, or retirement planning in general, please give us a call.

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