Moving Your 401k When Transitioning To A New Job
According to the Bureau of Labor Statistics, the average baby boomer held at least 11.7 jobs. For the typical millennial (the job-hopping generation) the career changes are likely going to be more. With so many anticipated employment changes what do you do with your qualified retirement plan? Do you keep it with your initial employer or move it each time you change a job? Let us explore the pros and cons of moving your 401k when transitioning to a new job.
Why bother moving your plan in the first place?
When leaving one job for another, you don’t want to leave your retirement plan with the former employer. Why? It can be difficult to keep track of your plan if you’ve lost touch with your former company. Additionally, you may only learn of changes made to your plan well after they’ve been implemented. If you’re still young and plan on working for the foreseeable future, moving your 401k is a reasonable thing to do.
Transferring your 401k to an IRA
Ideally, you want your money where you can see it. Moving your 401k to a traditional IRA means you have greater visibility of your plan, freedom to pick your own investments and can even set up the account so it can be inherited by your heirs when you pass on.
The transfer of your 401k to an IRA account can be done as a direct rollover. There are no tax obligations or penalties involved with a direct rollover. By opting for a direct rollover you avoid the 20% mandatory federal income tax withholding and the 10% early withdrawal penalty that you’d face if you opted for an indirect rollover.
Moving your 401k to your new employer’s plan
Not everyone is comfortable handling their own retirement investments in an IRA. For this reason, some people prefer to move their retirement plan into their new employer’s plan when they change jobs. This can be done via a direct transfer. Before making the move, however, due diligence should be done about the new employer’s current plan. Do you like the investment options that are part of the plan?
Going this route also has its fair share of advantages which include no tax penalties for the move, management of your investments by a qualified team, and the ability to borrow loans against your account. The major downside with this option is mostly about not having the freedom to pick and choose your own investment vehicles the same way you would if you had moved your 401k to an IRA.
Not sure which way to move your 401k?
Are you still concerned about moving your 401k? Reed Financial Group is dedicated to helping you with your career financial transition process. With over 20 years of experience guiding investment portfolios and providing advice on retirement decisions, we’re more than happy to help you during this time.
Contact us for more information.