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A 401(k) is an extremely valuable benefit to any job. But what happens when you leave your current employer? What are your alternatives with respect to the money you have contributed to your retirement plan?
Your Options with Your 401(k) When You Change Jobs
A plan participant leaving an employer typically has four options (and may engage in a combination of these options), each choice offering advantages and disadvantages:
- You can leave your money with the employer, if permitted—If you have at least $5,000 in a 401(k) with your former employer, you are legally entitled to have those funds stay there until you reach the age of 65
- You can roll over your 401(k) into a similar plan with your new employer, if permitted—A rollover is a legal transfer of the funds into a new account. You can always roll funds over into an existing 401(k) with your new employer, and there’s typically no cost for doing so.
- You can roll over the funds from your 401(k) into an IRA (Individual Retirement Account)—If you prefer managing your own investments, you can roll funds over into your personal IRA without tax consequences.
- You can cash out—This is typically not advisable, unless you are over the age of 55, as you’ll incur a 10% penalty and you’ll have to pay state and federal taxes, if it’s a traditional 401(k).
If you plan to rollover funds into an IRA or your new employer’s 401(k), you need to take action pretty quickly, but only if you actually withdraw the funds as a part of the rollover. If you don’t withdraw the funds, they can stay with your former employer until age 65. If, however, you actually pull your funds out of your former employer’s 401(k), they must be rolled over into a new IRA or 401(k) within 60 days of withdrawal.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
Contact The Pinnacle Financial Group
At The Pinnacle Financial Group, we’ve provided professional risk management advice to individuals and businesses in New York and Connecticut for two decades. We understand the critical role insurance planning plays in your financial future. We’ll carefully explain your options and the different strategies available to you, so that you can make the right decisions for you and your loved ones.
To schedule a free initial consultation, call our offices at 516-763-9700 or complete the form provided below.
