What To Do With Your 401(k) When You Change Jobs

Your grandparents might have worked for the same company for thirty years, retiring with a comfortable pension. Today, however, those situations are increasingly rare. Not only have pensions mostly disappeared, but the responsibility of retirement planning now falls largely on individuals. Add to that the reality that many of us change employers multiple times throughout our careers, and it’s easy to see how retirement planning has become more complex.

If you’ve had an employer-sponsored retirement plan like a 401(k) up until now, you might be wondering what happens to those funds when you change jobs. In most cases, you have four options:

1. Cash out the funds in your old 401(k)
2. Leave your savings in the old 401(k) – You can’t continue contributing, but you can manage the money and let it continue growing.
3. Move your funds into a new employer-provided 401(k)
4. Roll over the funds into another retirement savings or income option, such as an IRA.

While it might seem tempting to cash out your 401(k), it’s rarely a good idea. Doing so will likely trigger tax penalties, and you’ll lose the compounding growth of your savings. So unless you’re facing an extraordinary circumstance, cashing out is usually not the best option.

What Are Your Other Options?

In some cases, it might make sense to leave your 401(k) in your previous employer’s plan. For instance, if your new employer doesn’t offer a 401(k) or the investment options aren’t as favorable, keeping the funds where they are could be a good choice. While managing multiple 401(k) accounts can be challenging, there are valid reasons for doing so, depending on your situation.

If you prefer to keep all your retirement savings in one place, you might consider rolling over your old 401(k) into your new employer’s plan. This option simplifies your management and allows you to benefit from your new employer’s investment options.

But what if your new employer doesn’t offer a 401(k), or you’re exploring different career paths such as freelance or gig work? In that case, rolling over the funds into an IRA or another retirement savings vehicle could be the best move. There are plenty of options available, and we can help you sort through them to find what works best for you.

Avoiding Tax Penalties

If you decide to roll over your funds, it’s important to do so correctly. Improperly conducted rollovers can trigger unnecessary tax penalties, reducing your hard-earned savings. Seeking expert guidance is crucial to ensuring that your rollover goes smoothly.

Let Us Help

Retirement planning can be overwhelming, especially in today’s changing work environment. Whether you’re changing jobs or simply want to review your retirement strategy, we’re here to help.

To discuss your options and ensure your savings are set up for long-term growth, DM me to setup a call.