Leaving a job can be an exciting time. Maybe you’re moving on to a new opportunity or taking a break to travel. Whatever the reason, it’s important to take stock of your financial situation, including your retirement savings. One question that often comes up is what to do with your 401(k) when you leave your job.
A 401(k) is a type of retirement account offered by many employers. It allows you to save and invest money for retirement on a tax-deferred basis, meaning you don’t pay taxes on the money you contribute until you withdraw it. If you leave your job, you have a few options for what to do with your 401(k). Here’s a rundown:
Leave it with your former employer
One option is to leave your 401(k) with your former employer. This can be a good choice if you’re happy with the investment options offered by your plan and if your former employer allows you to keep your account open. However, it’s worth noting that you won’t be able to contribute to the account once you leave your job, and you may be subject to higher fees than you would be with other options.
Roll it over into a new 401(k)
If you’re starting a new job and your new employer offers a 401(k), you may be able to roll over your old 401(k) into your new one. This can be a good choice if you like the investment options and fees of your new plan, and it can make it easier to keep track of all your retirement savings in one place.
Roll it over into an IRA
Another option is to roll your 401(k) into an individual retirement account (IRA). This can be a good choice if you want more control over your investments and lower fees. With an IRA, you can choose from a wider range of investment options than you would have with a 401(k), and you can often find lower fees than you would with a 401(k) as well.
Cash it out
One option that you should generally avoid is cashing out your 401(k) when you leave your job. While it can be tempting to take the money and run, you’ll likely end up paying a hefty penalty and taxes on the money you withdraw. Plus, you’ll be missing out on the potential for long-term growth if you cash out your account.
So, what’s the best option for you? That depends on your individual situation. If you’re not sure what to do, it’s worth talking to a financial advisor to get personalized advice. They can help you weigh the pros and cons of each option and come up with a plan that’s right for you.
In any case, it’s important to make a decision about what to do with your 401(k) as soon as possible after leaving your job. You don’t want to let your retirement savings languish in an old account or risk missing out on potential growth by waiting too long to make a decision.
Leaving a job can be a great opportunity to reassess your financial situation, including your retirement savings. When it comes to your 401(k), you have a few options, including leaving it with your former employer, rolling it over into a new 401(k) or an IRA, or cashing it out (which should generally be avoided). Whatever you decide, make sure you do it sooner rather than later to ensure that your retirement savings continue to grow.