Changing jobs? Here's What to Do With Your 401(k)
3 min. read
By: FCU Team
If you’re changing or in between jobs, you might be wondering what will become of your 401(k) (or other retirement account) you had with your previous employer. You have several options at your disposal! Join me as I give you a sneak peek at some of the options available to you and their differences.
Roll the Funds Over to an IRA
The most common option is to roll over your 401(k) to an Individual Retirement Account (IRA). An IRA is a different kind of retirement account. In general, IRAs have more investment options than an employer’s 401(k) plan. There are two kinds of IRAs: Traditional IRAs and Roth IRAs, and each offer tax breaks but are different in when those breaks are available for claiming.
You may have more freedom with an IRA than you would with your employer’s plan, being able to invest in a wider variety of investments, as well as the ability to allocate your IRA dollars among different IRA trustees/custodians. You’ll also be able to decide the timing and the amount of your distributions with an IRA.
Roll the Funds Over to Your New Employer’s Plan
Another option is to roll your funds into your new employer’s plan, if they have one. While you have more freedom with an IRA, a 401(k) also offers its own set of distinct advantages. Many employer-sponsored plans allow you to borrow 50% of the amount that you roll over to your new employer’s plan. In contrast, you cannot borrow money from an IRA, only take a distribution which may be subject to penalties and taxes. For more information on what kind of withdrawals will or won’t incur penalties or taxes, please consult a financial professional!
Leave Your Money in the Plan
The simplest of all the options, you can choose to leave your funds in your former employer’s plan, which can stay until you reach retirement age. Know that leaving money in the plan may not be a viable option if the amount you have vested is $5,000 or less, or if the payment is a required minimum distribution. Also, your existing plan may not offer many investment options.
Take Out Your Funds (Though You Probably Shouldn’t)
Finally, you have the ability to take a lump-sum distribution in cash of your 401(k) funds. Many financial institutions and educators strongly advise against this! For a 401(k) to function as intended, the money you deposit into your account needs to be in there for the long run, growing year over year. Taking your money out early may result in compromised financial health when you reach retirement age.
What’s more, doing so can incur a 10% penalty, not to mention having to pay federal (and potentially state) taxes on the funds you’re taking out. In short – it’s something you only ever want to do in the case of a major emergency.
If you’re interested in finding out more information or getting the ball running on making a change, give us a call!
Florida Credit Union Investment Center
Ken Toops, CRPC
Financial Advisor, CUSO Financial Services, LP
2831 NW 43rd Street
Gainesville, FL 32606
FCU's Investment Services
About Ken Toops
As a Financial Advisor to Florida Credit Union members, Ken Toops brings more than 10 years of industry experience to the job. His mission is to help you implement and monitor financial plans that are designed to address your specific needs and objectives. He will accomplish this through a thoughtful, disciplined approach to investment and risk management.
Non-deposit investment products and services are offered through CUSO Financial Services, LP ("CFS") a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS for investment services.
Before deciding whether to retain assets in an employer sponsored plan or roll over to an IRA an investor should consider various factors including, but not limited to: investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock.