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What To Do With Your 401(k) When Changing Jobs Or Retiring

What To Do With Your 401(k) Plan Account When Changing Jobs Or Retiring

Changing jobs or retiring? Are you wondering what you should do with your 401(k)?  If you leave your job whether it be to retire or for a new job, you are entitled to the vested balance of your 401(k). Your vested balance includes the contributions you have made, as well some, or all, of the contributions your employer may have made. Typically, employers have a vesting schedule that determines what percentage of their contributions you are entitled to based on the number of years you have been with them. When it comes to leaving your job where you had a 401(k) plan account, you essentially have 4 options: you may roll the money over into an IRA,  roll over into a new employer 401(k) plan, leave the money where it is, or cash it out.

Move Your Money into an IRA

If you already have an IRA, you can request that your 401(k) be rolled over directly into your existing IRA account. If you do not have an existing IRA, you can still rollover your 401(k) into a new IRA account by opening a new account with a financial professional.

Rolling Your 401(k) into a new employer 401(k)

If you are switching jobs, rolling over your 401(k) into a new employer 401(k) plan may be an option. If your new employer offers a 401(k) plan, you might consider rolling over your former 401(k) plan into your new plan to consolidate the money. Your new plan might have some rules regarding rollovers, so you would need to check with your plan sponsor before rolling over the funds. You should also check out the investment options available to you before you roll over the funds to make sure you have access to options that fit your needs and liking.

Leave your Money Where It’s At

You may  be able to leave your money in the old plan. If you are happy with the plan and service that is provided to you, as well as the investment options, then this may be an option to consider.

Cash It Out

Lastly, you can cash out your 401(k). By doing so, the entire amount will be treated as ordinary income for the year you cash it out. You should only cash it out if you need the money quickly as you will have to pay taxes on it. Depending on the amount, it could bump you up into a higher tax bracket the year you take the distribution. Talk with a financial professional about how this option could affect you during tax time.

If you’re wondering what option is best for you, reach out to Peter O’Brien today and he can talk to you about your options and help provide you with the information you need to make this decision regarding your 401(k) after changing jobs or retiring.