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Changing jobs or retiring is a big life transition. You have boxes to pack and new names to learn. In all that excitement, it is easy to forget about the retirement savings you built up at your old company. That account is your hard-earned money. You want to make sure it keeps working for you.
Let’s look at the answers to the four most common questions people ask during this transition.
Can I leave my 401k with my old employer?
You can typically leave your funds right where they are if your account has more than $5,000 in it.
This can be a good choice if you like the investment options your old company offers. However, you should check the fine print to see if there are extra fees for people who no longer work there. Sometimes plans have rules that limit what you can do once you leave the payroll, so it is wise to double-check.
Is it possible to move my savings to my new job?
If your new company has a retirement plan, you can likely move your old savings there to keep everything in one place.
This process is called a "rollover." It allows you to move your eligible money directly into the new plan without paying taxes on it right now. This is a great way to simplify your financial life. It keeps your money growing tax-deferred, which means it can grow faster because taxes are not taking a bite out of it every year.
⭐ 5-Star Tip: The "Direct Rollover" is your best friend. When you move money to a new employer or an IRA, ask for a "direct rollover." This means the money moves from one account to the other without ever touching your hands. This prevents you from accidentally triggering a tax bill or penalties.
What are the benefits of rolling over to an IRA?
An IRA gives you full control over your money and usually offers more investment choices than a standard work plan.
An Individual Retirement Account, or IRA, is a personal account that stays with you no matter where you work. Moving your money here allows it to stay invested so it can keep growing without a tax bill due immediately. You should look at the fees and features of the IRA, but for many people, this option offers the most freedom.
What does it cost to cash out my retirement plan?
Taking the cash is a costly decision that often triggers a 20% tax withholding and a 10% penalty fee.
We strongly advise you to look at the math before you ask for a check. First, the IRS requires your employer to take 20% of your money right away for federal taxes. If you are under the age of 59½, you usually have to pay an extra 10% penalty on top of that.
That is money that disappears forever instead of compounding for your future.
Let’s Talk
You do not have to make this decision alone. We can look at your specific situation and help you decide which path fits your goals. Use the link below to contact us .
Common 401k Rollover Questions:
How long do I have to roll over a 401k? If you receive a cash distribution check personally, you generally have 60 days to deposit that money into a new retirement account to avoid taxes and penalties.
Are there taxes on a direct rollover? No, if you do a direct rollover from your old plan to a new plan or an IRA, you do not pay current income taxes or penalties on that money.
What happens if I cash out my 401k before age 59½? In addition to regular income taxes, you will likely face a 10% early withdrawal penalty from the IRS