When leaving a job, you have to make plans for your finances. One of the most important thing to think about when you leave a job is what to do with your 401(k). Your 401(k) is one of the most important aspects of your own personal financial circumstances. You want to be sure to make the best decision regarding what to do with that money after you leave your current employer. There are a number of 401k rollover options that you can consider to determine the best fit for your own personal financial health post-retirement. Find out all about these 401(k) rollover options you have at your disposal detailed in the post below.
Leave It Alone
Many employers allow you to leave your money in your existing 401(k) plan. This is a convenient option. It does not require you to do a single thing at all. All you have to do is make sure it is allowed at your current employer. However, leaving your 401(k) with your old employer also has its downsides. One disadvantage is that you cannot continue contributing to the employer 401k plan. This will ultimately hurt your financial health upon retirement. But, it is still an easy option to leave your existing 401k alone. You will still have the option to rollover your 401k to a new employer’s plan in the future. If you just want the easiest 401k rollover options, consider leaving it alone until you qualify for your new employer’s 401(k) plan.
You can also elect to rollover your 401k to an IRA. A traditional IRA, or individual retirement account, offers you a bit more flexibility when it comes to managing your own retirement savings. Just like a 401(k), your money will grow tax-deferred in a traditional IRA account. You can also combine multiple 401(k)s to rollover into a traditional IRA account. Of course, you may be responsible for investing fees and other expenses for your IRA. There is no employer to cover these costs for you. But, this is still one of the most popular 401k rollover options taken advantage of by many people every year. You would be wise to consider it.
You can also opt to rollover a 401k into a Roth IRA. Roth IRAs are different from traditional IRAs. When you rollover to a Roth IRA, you are responsible for paying taxes on the amount you rollover. These Roth IRA penalties are not something you have to worry about with traditional IRA rollovers. Of course, you will also be responsible for investing fees and expenses with Roth IRA investments. But, you will also have more investment options than you did with your employer-sponsored 401(k). In addition, you do not have to take RMDs, or required minimum distributions, when you reach aged 70, unlike other retirement account options. If you want to continue to contribute to your retirement savings after leaving your current job, you can choose to rollover 401k to a Roth IRA for your future financial comfort.
If you already have another job lined up, you can choose to rollover your 401k into a new 401k offered by your new employer. Your new employer-sponsored 401k will provide rollover options to help you make the best retirement investing options. This is called a direct rollover. These types of direct 401k rollovers are the most simple to take advantage of. You will still be able to contribute to your new 401(k) tax-deferred. You will also benefit from the compound interest on a larger principal balance thanks to exchanging money. The best way to rollover old 401k plans is to rollover directly to new employer 401k plans. If you have this option available to you, make sure you consider it.
Of course, you can always rollover your 401(k) right into your own pocket. You can cash out your 401k in a lump sum when you leave your current workplace. However, you should remember that cashing out will incur tax penalties. You will be responsible for federal and state income tax on any money you withdraw from your 401(k). In addition, you will probably be charged a 10% penalty tax for premature 401k distribution. Though, some may qualify for an exemption to this rule, like those who are 55 or older. When you cash out a 401(k) early, you will not take home nearly as much money as you would anticipate. It also negatively impacts your retirement savings, even if you deposit the funds into a smart bank immediately after withdrawal. But, this is still one of the 401k rollover options you have to consider if you need to. Just be warned, you should avoid this option at all costs if you do not want to have to worry about finances in old age after you retire.
Rolling over a 401k is not difficult. However, there are many different options for retirement investors to consider when they leave a place of employment. If you are leaving your current employer and wondering what to do with your 401(k), consider the 401k rollover options detailed above. These 401(k) rollover options will all have various implications for your personal financial health both now and upon retirement. Consider your options carefully to make the best possible financial decision. This way, you can rollover existing 401ks easily, knowing you are doing what is best for your retirement nest egg.