Four Ways to Handle a 401(k) After a Job Change
You could leave it where it is, roll it into your new employer’s plan, move it to an IRA, or cash it out. Understanding these options can help you make the decision that keeps your money working hardest for you.
1. Leave It in Your Old 401(k)
Believe it or not, one option is to simply leave your money where it is. Many 401(k) plans allow you to keep your account even after you leave a company.
Pros:
- Your investments continue to grow tax-deferred.
- You maintain access to any unique investment options your old plan offers.
Cons:
- You can’t contribute any more money to this plan.
- Some old plans charge higher fees or limit your investment choices.
- Keeping track of multiple accounts can get messy over time.
Leaving it behind can work in the short term, but over time and with multiple job changes, multiple accounts can become harder to manage.
2. Roll It Over to Your New Employer’s 401(k)
If your new employer offers a 401(k), you may be able to roll your old account into the new plan and continue saving within one workplace account.
Pros:
- Consolidates your savings, making it easier to manage.
- You continue to enjoy tax-deferred growth.
- You can keep contributing without opening a separate account.
Cons:
- Your new plan might have limited investment options.
- Some employers have waiting periods before you can contribute.
Rolling over into your new employer’s plan can be a smart move if your new plan has lower fees and better investment options. Plus, keeping everything in one place reduces the chances of losing track of money over the years.
3. Roll It Over into an IRA
Another alternative is to roll your 401(k) into an Individual Retirement Account (IRA). This can be into a Traditional IRA or a Roth IRA, depending on your goals and tax situation.
Pros:
- Potentially more investment options than most employer plans.
- You have complete control over your account.
- May have lower costs than your previous 401(k).
Cons:
- Traditional IRAs have required minimum distributions (RMDs) starting at age 73, Roth IRAs do not
- If you roll into a Roth IRA, you may owe taxes on the conversion.
IRAs can be a great choice if you want flexibility and more control over your retirement savings.
