What To Do With Your 401(k) When You Leave Your Job

It’s not uncommon to have more than one, if not ten, jobs in your lifetime. Sooner or later you may be on the search for a new job.

If you were taking advantage of the 401(k) plan with your current employer, what should you do with it once you start your new job? There are a few options to consider.

The easiest and most straight forward option is to keep your money with the current provider. Not all companies allow this option, so make sure to check the plan rules. Leaving your account where it is can allow your money to grow over time, however, you will not be able to make any additional contributions to it and you are limited to the plan investment options.

According to Fidelity, if your account has less than $5,000, it may be automatically rolled out and sent to you or your designated IRA.  Please be sure to reach out to the administrator of the 401(K) plan to discuss the options available to you.

You can elect to move or “rollover” your money into an IRA with a different bank or brokerage firm. The firm that you select may have a wider variety of investment options to choose from than the employer.

Make sure to do your research, each IRA provider may have different fees and expenses.

Consolidating your previous 401(k) with your new plan can make managing and tracking your retirement savings much easier. If able, it’s a good idea to compare plans before making a final decision.

Again, check with your new employer to make sure they accept rollovers.

A direct rollover is when one financial institution sends a check directly to the other financial institution. Reach out to the administrator of the new firm or company to find out their specifications for direct rollovers. They will provide you with the address and how to make out the check, normally is it the financial institution’s name with “for the benefit of” your name. Once you have this information, you can provide it to the old employer and your money will be sent by check directly.

You may choose indirect rollover. According to Investopedia, this option is definitely riskier than the direct rollover. With this selection, a check is made out to simply your name and sent directly to you. The drawback with this choice is that the company assumes you are going to cash the check and is required to withhold 20% of your funds for taxes. Once you receive the check, it must be deposited into a 401(k) or IRA within 60 days to avoid any more penalties.

It’s important to pay attention to how your money is transferred, because both options above are not considered equal.

As always, you should consult a financial advisor to help you decide what the best option is for you.