Switching jobs and employers is exciting. But with this change comes logistical hurdles and important considerations — like what you’ll do with your retirement plan from your previous employer.
Put simply, those changing jobs and moving to a new employer will have one of four options for managing their 401(k) funds:
To help you better understand these choices, you’ll find a summary of the pros and cons of each of the four options below.
If your new employer offers a 401(k) plan, you’ll likely have the option to roll (think transfer) your existing funds into your new employer’s plan. This approach helps consolidate your funds — making it easier to manage your investments.
Pros:
Cons:
If you are looking for greater control over your investments, or if your new employer doesn’t offer a 401(k) plan, you may want to roll your old 401(k) funds into an IRA account.
Pros:
Cons:
The simplest option of the bunch is just to leave your 401(k) where it is. Doing so will allow your funds to continue growing tax-deferred until retirement.
Pros:
Cons:
Your final option, and probably the least advisable of the bunch, is to cash out your old 401(k). Cashing out your funds early can result in substantial taxes and penalties, diminishing the amount you’d ultimately pocket.
Pros:
Cons:
In short, you should carefully consider what to do with your 401(k) when switching employers. This consideration should include an evaluation of your financial situation, retirement goals, and the specifics of your current and potential future employment.
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