What should I do with my 401k plan when i leave?

Question

Here's my problem. I had a 401k plan at my old job but now I'm going to be starting a new job that doesn't offer a 401k plan. What do I do? Do I cash it out? can my old job simply "hold it" for me until I roll it over to another company? Or do I transfer it to a IRA savings in a bank? Are there any other options or are these it, what's the best thing to do?

Answer 1

Do not close your existing 401(k) account balance because the amount will be subject to taxes and a 10% penality for early withdrawal. Furthermore, you contributed to your 401(k) plan because you want to be saving for retirement and that objective hasn't changed because you are changing jobs.

So, you have eliminated the option of a complete cash-out and you cannot transfer the amount to your new employer's plan because they do not currently offer one.

That leaves you with two options: 1) Leave the money in your existing plan; or 2) Rollover the balance to an Independent Retirement Savings Account (IRA). Under the law, the "rollover" provision allows you to withdraw from a 401(k) plan and deposit the funds into another qualified retirement account without incurring taxes or penalties on the balance.


However, some companies have a minimum balance requirement in order for you to be permitted to keep your existing funds in the 401(k) plan. If there is a minimum balance requirement, the company can force you to withdrawal your funds or rollover your balance to another employer's 401(k) plan or to an IRA.

If your previous employer does have a minimum balance requirement and you do not meet this minimum, you will be notified in writing. In order to prevent taxation on your balance and avoid the 10% penalty for early withdrawal, rollover the balance to an IRA.

If you meet the minimum balance requirement, you can leave your funds in your previous employer's 401(1) plan indefinitely. If the plan is performing well, that might be the best option. If you are not happy with the plan's financial performance, you might opt to move your money to an IRA.

Since your new employer doesn't offer a 401(k) and you can no longer make contributions to your previous employer's plan, you will want to continue saving for retirement by opening and contributing to an IRA. It is best to have all of your money in one fund so that you make the most from your investment but I wouldn't be overly concerned with that until you have two relatively high balances in two separate accounts.

As far as what financial institution to use there are a countless numbers of companies (i.e. Vanguard, Fidelity, US Bank, Chase, T. Rowe Price, and Bank of America). Select a company that you are familiar with and research any fees before opening an account.

Answer 2

I have no idea of your age and that is important with regard to the tax bite you will take if you withdraw it. If you are fairly young I would roll it over into an IRA and continue putting the same portion of your new salary into it. Taking it out will do nothing but cost you big time while continuing the savings may allow you that comfortable retirement you hear so much about. I am 64 and still working because I never had a retirement plan, ever, with all the mom and pop operations I worked for through life. The job I have now has a 401K and in three years I have accumulated 14,000.00 but I will be dead before I have enough to actually retire on so don't do that to yourself. Take advantage of the 401K, continue your contributions and you won't regret it. Your HR department at the old job can tell you how to roll it over into an IRA.

Answer 3

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Answer 4

There are multiple options available to you.

Most people choose to roll it over into some kind of tax-deferred investment vehicle like an IRA. If you want to do this, you'll need to set up an IRA with the company of your choice (I recommend American Century Investments or Fidelity or Vanguard, but any organization you trust or have a relationship with can help you), and then direct your employer to directly transfer the money to the company you've selected. You can't touch it, or they'll hold out 20% and give it to the government, and you'll have to prove that you rolled it over within 60 days, and then you'll get your 20% back with your tax return, but it won't be in your account during that time, so have your employer roll it over for you. The company that you decide to open your IRA with will assist you with this.

If you cash it out, you'll be subject to various penalties, including the tax liability for what you earned, and an additional penalty because you cashed it out before you reached minimum retirement age (unless you're already at minimum retirement age defined by IRS guidelines for someone born during the year that you were born). Then you'll only be liable for the taxes on the distribution.

If you don't have a 401(k) plan at the new job, be sure you regularly contribute to your IRA. If you're planning to be in the same tax bracket for the remainder of your working life, then it probably doesn't matter if you do a Roth IRA or a Traditional IRA. If you think you'll be getting enough raises over your lifetime to boost you into a higher tax bracket, then you should open a Roth IRA since your contributions will be taxed when you make them, and then your distributions that you take out at retirement will be tax-free.

I had a financial emergency a couple of years ago where I actually cashed out about $10K of my retirement. I had to pay taxes and penalties, but it prevented me from having to borrow the $10K, and I didn't pay a penny of interest to any lender.

So what's the best thing to do? Only you can decide. If you don't need the money, I'd recommend a rollover.

Good luck.

Answer 5

It depends how much money is in your plan. If you saved more than $10,000, you don't have to move at all. This is true even if you have a 401(k) plan with your new employer.

If you have less than $10,000, you should transfer it to an IRA. You can transfer it to an IRA without fees or penalties in most cases. If you're new employer doesn't have a 401(k), I'd recommend you continue saving into an IRA. Retirement plans are the easiest way to guarantee wealth in the future.

Definitely don't cash it out. You have to pay the taxes on all of that money, and you also may incur fees.

Answer 6

you basically know what to do, so just do 1 of the options. Just dont cash out, thats the worst thing you could do.
Roll it over to an IRA or roll over to the company it is with, all you have to do is call them and they will advise you..you will just have to make contributions after tax now.

Answer 7

transfer it to a IRA savings and leave it there...you never know what the company who holds it will do in the future...

Answer 8

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Answer 9

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Answer 10

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