What to Do with your Retirement Plan When You Leave Your Job
If you have left your company or are retiring, you might be wondering what the options are for your retirement plan, like a 401(k) or 403(b).
Each plan is designed specifically for that company, so there might be nuances to your company you’ll want to consider. For general purposes, however, there are four things you can choose to do with your assets once you leave a company. You’ll want to make sure you know the pros and cons of each so you can make the best decision for you and your money:
Roll it over to an IRA. You can opt to roll the balance into a Rollover IRA. This allows you to consolidate your retirement accounts in one place while continuing tax-deferred growth. You’ll have a wide range of investment options.
Roll it over to your new employer’s retirement plan (if their plan allows it). Investment options vary by plan, but the assets can continue to grow without penalty.
Let it lie. If you are satisfied with your investment choices, you may currently leave your assets in your company’s plan. You’ll no longer be able to contribute to your plan, but, if permitted, this option allows you to stay put.
Cash it out. Tempting, but we caution against it. This reduces your retirement savings and you will have to include the distribution in your income taxes. Additionally, if you are under 59 ½, you’ll most likely owe a 10% fee on top of taxes to the IRS for early withdrawal.
Here is a chart to sum up the features of each one:
Before you make a decision, make sure you contact your plan provider for more details and take into account any special circumstances you might have. You’ll want to ask specifically about your options and any fees you’ll incur from each option so you can make the best decision for you and your money.
Have you left a job recently? Have questions about your Rollover? Reach out to us at 770-394-5619!
Disclaimers:
Investors Asset Management does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
Views expressed are as of the date indicated and may change based on market and other conditions.
Be sure to consider all your available options and the applicable fees and features of each before moving your retirement assets.
The taxable portion of your withdrawal that is eligible for rollover into an individual retirement account (IRA) or another employer's retirement plan is subject to 20% mandatory federal income tax withholding, unless it is directly rolled over to an IRA or another employer plan. (You may owe more or less when you file your income taxes.) If you are under age 59½, the taxable portion of your withdrawal may also be subject to a 10% early withdrawal penalty, unless you qualify for an exception to this rule. Be sure you understand the tax consequences and your plan’s rules for distributions before you initiate a distribution. You may want to consult your tax advisor about your situation.
1. Traditional or Rollover IRA. Contributions to a rollover IRA, in addition to rollover amounts, may reduce the likelihood of you being able to roll to a new employer's plan in the future.
2. The new employer may impose a waiting period – each plan design has specific enrollment periods.
3. You may take penalty free distributions from a qualified employer plan if you terminate employment with the employer sponsoring the plan during or after the year you reach age 55.