Amatics Retirement Tips: 401K and
Job Changes
If you change jobs, you might be concerned about your 401k. What happens to this account when you switch employers? There are a few options to consider.
Cash Out.
The benefit to cashing out is that you have instant cash. The problem with this option is that withdrawing 401(k) funds means serious tax penalties. Taking out your retirement fund before age 59 1/2 results in a 10% penalty. This doesn’t even count the traditional income taxes on the distribution. We do not recommend this route and suggest looking at other options if you are strapped for cash.
Leave your assets alone.
You might be able to leave your assets in your previous employer’s plan. If this is a possibility, it might be your easiest option. Ask HR if this is an option with your current employer. The only issue with this route is that you can’t make contributions or take plan loans, and you may be limited in investment options. Also, you have to remember to contact the former employer every time your address changes or any other critical personal details linked to the account change.
Roll the assets into an IRA.
After consulting with your tax advisor, you might opt to move your funds into an Individual Retirement Account (IRA) that you manage on your own. The good news here is that there are no tax penalties and you have more control over the account. Keep in mind though: federal laws protect assets in work-related retirement fund more than those in IRAs.
Roll the assets into your new company plan.
This option consolidates all of your retirement funds in one single account, making it easier to track. The downside? You will have to manage your fund within the limits of the new employer’s plan. Compared to say, an IRA, the employer’s 401k might have more restricted investment options.
A 401k is a critical account for your savings. Take the time to make an informed decision. Consulting with an accountant certainly helps. Contact Amatics today to make an appointment with our in-house wealth management adviso