What to Do With Your 401(k) From a Previous Employer
by Jonathan Dyer
When leaving a job with an employer there are obviously a number of changes you will experience and decisions you will need to make about your future. One such decision that is sometimes forgotten is what to do with the 401(k) you had under your former employer. In addition to any contributions you may have made to your account, you may also have a vested chunk of matching funds or even profit sharing in your 401(k). You certainly don’t want to lose those funds but it may not be obvious what to do to preserve it. Do you cash it out, leave it be, or roll it over into an IRA?
Cashing Out Your 401(k)
Recently USA Today looked at this very dilemma. As they point out, unless you’re retiring, cashing out your 401(k) when leaving a job is rarely if ever a good idea. In addition to the taxes you’ll have to pay on the money you collect you’ll also be assessed a 10% early withdrawal penalty.
You should also be aware that if you have an outstanding loan from your 401(k) account at the time you leave your job you will typically need to pay back the balance within 60 days. If you fail to pay it back in that time it will be accounted for as withdrawal and that 10% penalty (and the appropriate taxes) will apply.
Keeping Your 401(k)
Depending on your employer’s rules and the balance of your account you may have the option to simply keep your 401(k) as it is. This could be a good option if you are happy with how your funds are invested and with the returns you’re getting. In these cases, and depending on your situation and personality, it might make sense just to leave you’re retirement savings on “auto pilot.” Another option is that, in some cases you may be able to combine the 401(k) from your old employer with that of your new employer. However the most popular option for what to do with a 401(k) is to roll it into an IRA.
Rolling Over to an IRA
Unlike 401(k)s that typically only have a few options for investing, IRAs have much more flexibility. This allows you to be as hands-on as you want with your investments and tailor them to your risk tolerance. For example you could put your money into mutual funds similar to a 401(k), select stocks specifically you would like to buy, or even invest your money on a marketplace lending platform. The other advantage to an IRA is that you can be more aggressive with your investments when you’re younger, but move your money to more conservative investments as you near retirement.
The good news is that you don’t have to make a decision right away. Unless you have an outstanding loan from your 401(k) that you will need to pay back, you can keep your account where it is until you’re ready to move it. Because of this the best thing to do is to look at all of your options and choose the one that’s best for your individual needs.
I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.
Rocket Companies — the parent company of Rocket Mortgage, Rocket Homes, Rocket Loans and Rocket Money — is now adding a branded credit card to the mix. This week, Rocket introduced the Rocket Visa Signature Card. Not only will the new offering integrate with Rocket Money but will allow cardholders to earn up to 5% back. With the Rocket Card, customers can earn 5 Rocket Rewards on every purchase they make....
In January, the popular investment app Robinhood officially introduced its IRA program Robinhood Retirement. Now, ahead of this year's tax deadline, the company has announced a partnership with Capitalize that will make it easier for customers to transfer their existing IRAs and 401(k)s over to the platform. As a result of the partnership, Robinhood Retirement users will be able to find legacy 401(k) accounts and roll them over into a...
Since the advent of online banking, it's been easier for customers to check their balances, make transfers, and conduct other transactions from their computer or smartphone. However, a new survey highlights the fact that banks could be doing more with their digital platform to please customers. According to a Sopra Steria and IPSOS report, nearly 70% of banking customers want their institutions to provide more personalized financial recommendations that can...
Put simply, the value proposition of Pay with GasBuddy is that you can use a special card that's accepted at most gas stations in order to save a few cents off of every gallon of gas you buy. That sounds good — almost too good, if you think like me.
Over the past few months, I've been a bit torn. While I love saving money and keeping costs down, the convenience of grocery delivery has proven too powerful for me to resist. Now one of my favorite discount grocery stores is rolling out a better option with the introduction of Aldi Curbside Pickup. Yet, the question still remains: is this option actually worth it?
Over the past few years, the free credit score site Credit Karma has expanded into other aspects of finance. This includes offering an unclaimed funds finder as well as a free tax filing platform (which they recently sold off to Block Inc now that Intuit’s purchase of Credit Karma has been completed). Additionally, Credit Karma has rolled out a free checking account in the form of Credit Karma Money Spend ...
A few short weeks ago, I shared my review of an app called Current Rewards that allows you to earn gift cards and cash just for listening to music (although you'll need to do a bit more if you want to really earn points). As I noted in that review, I was first made aware of the app's existence thanks to an ad I saw for the Mode Phone. Well,...
First the bad news: considering all the major data breaches that have hit retailers, websites, and freaking credit bureaus alike, there’s a very strong chance your personal info has been compromised at some point. Luckily, in addition to steps you can take, such as freezing your credit reports to prevent criminals from using this data, there are a growing number of tools you can use to foil thieves in the...