Did you know an estimated 24.3 million 401(k) accounts and $1.35 trillion in assets have been left behind by job changers1.
Have you ever left a job that had a Retirement Plan, like a 401k? What did you do with your money in that plan? In many cases people leave their money in previous employer’s Retirement Plans because they didn’t know how to move it or they simply never got around to it.
What are your options?
There are four options that I am going to walk you through:
- You may be able to leave it right where it is. Some plans require you move your money out of the plan in a certain time frame after ending your employment. However, some plans may allow former employee’s to keep their funds in the plan, usually if they meet a minimum balance. You can check with your former employer’s HR department to find out what the plan stipulates if you wish to keep it there. If you choose to leave the money there, your investment capabilities are limited to the fund choices provided by the plan and you can’t add any additional money.
- You can cash out the money, however this generates a taxable event. You may be required to pay income taxes PLUS a 10% penalty for early withdrawal if you are younger than 59½.
- If your current employer has a retirement plan, you may be able to roll the money into that plan. This depends on the plan rules, you can contact your current employer’s HR department to see if it is allowed. Again, if you choose to have the money in an employer plan, your investment capabilities are limited to the fund choices provided by the plan.
- You can roll the money into an IRA. By choosing this option, you get to choose your financial advisor on the account and potentially have much more diverse investment options than having it in an employer plan. This may also help you simplify, because if you have more than one, you can roll all your previous employer’s retirement plans into one account. When you do a rollover transaction, you avoid a taxable event. This means your money keeps it’s retirement status and can keep growing. Also, as long as you meet the requirements set out by the IRS, you can keep contributing to this account at your digression.
Whether you are leaving an old job for a new one or simply retiring, we are here to help you! If you are ready to rollover into an IRA or simply want to further discuss your options, please contact us to set up a time to talk.
Sources: 1. Capitalize. 2022. The True Cost of Forgotten 401(k) Accounts – Capitalize. [online] Available at: <https://www.hicapitalize.com/resources/the-true-cost-of-forgotten-401ks/> [Accessed 10 October 2022].
Disclaimers: The information in this material is not intended as tax advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a tax professional for specific information regarding your individual situation. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation