4 Ways to Move Your Old 401(k)
If you’ve recently changed jobs, then let us offer you a hearty congratulations! Career advancement is a rewarding thing: an opportunity for growth, a change, new coworkers… this is an exciting time. One thing you may have not thought about is what to do with your old retirement plan once you’ve landed a new job.
That’s right: you can take your old retirement plan with you, depending on the plan and if you choose to do so. This article will outline some of the retirement plan options available to you after you’ve switched careers. Typically, if your account has a certain amount of funds (usually more than $5000), you have a few options to choose from.
1. Take It With You
Depending on the investment options and how low the feeds are on your new plan, rolling your old 401(k) account into your new one will make it easier to not only manage your savings but will also make running your accounts more efficient. This is because having your accounts in one place makes it easier to manage and can grow your savings.
Additionally, rolling one account into another means that older employees can defer making their minimum withdrawals.
Before you roll your account over, you want to make sure that you are comparing the costs of your older plan to the costs of your current plan to make the best investment decision. Ideally, you would invest in funds with fees lower than 1%, as higher fees can slow the growth of your account significantly.
Your new company may have a waiting period of up to 60 days before you are able to roll over your old account, so be sure to take into consideration what to do in this instance.
The main issue with rolling over your accounts is that your money is stuck in your new job’s account until you decide to switch again, at which point you will have to repeat the whole process. As with any investment decision, you should be sure to speak to a professional before deciding what’s best for your financial future.
2. Cash It Out
Let us first say that this should be considered a last resort and we do not recommend this option as a smart long-term financial move. In fact, we wrote an entire article about why you should not cash out your 401(k) account.
Allow us to reiterate why this is a terrible idea:
- You’ll have to pay taxes on what you take out
- You will have to pay a withdrawal penalty
- Individuals who borrow from their 401(k) account almost always take out more than one loan
For further detail on these reasons, please visit our article on cashing out your 401(k). Additionally, the average person may end up changing jobs roughly 11 times during the course of his or her career. This means that cashing out your money will charge you a withdrawal penalty every time you choose to do so, reducing your retirement nest egg.
3. Switch to an IRA
This is a good option for employees who may not care for their old 401(k) option or the new option offered to them. You have options and one of them is to ditch the 401(k) plan altogether and roll it into an IRA account.
IRA accounts can be tricky, so you should thoroughly shop around before rolling over. Some accounts come with no fees whereas others have high fees – generally 15 to 30 points higher than 401(k) fees.
Additionally, 401(k) plans offer more protection against creditors. If you foresee financial difficulties such as legal battles or bankruptcy, rolling over into an IRA account may not be right for you. Another downside to IRA accounts is that you will have to make minimum withdrawals around the age of 70 If you plan on working longer, this may not be the best option for your retirement fund.
4. Don’t Touch Your 401(k)
If you have over $5,000 in your account, you have the option of simply leaving your money in the plan set out by your former employer. If you account has fallen below this number, you typically have 60 days to decide what you would like to do with your money before it is liquidated.
Leaving your funds in your old plan may seem like an odd option; however, if your old plan had lower fees and better investment opportunities, this could be a good decision. Additionally – even though we advise you do not make any withdrawals from your plan – you can withdraw from your old 401(k) account without the 10% penalty if you are over the age of 55.
As with any option, there is a drawback. Should you choose to keep your old account, it provides you with one more account to keep track of If you change jobs frequently, this is not your best option.
As always, before making any financial decision that impacts your future, you should speak to a trusted financial adviser and weigh your options. When it comes to switching jobs and what to do with your old pension plan, it is important to research your investment options thoroughly and to decide which will work for you and your future goals.
Questions about your old 401(k) account and what to do with it? Don’t hesitate to give us a call today to speak to one of our advisers!