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What to Do With Your 401(k) When Switching Jobs

February 13, 2023

Two business professionals shaking hands

Switching jobs? Don’t forget to address what you’ll do with your 401(k). Depending on how much money you have in your 401(k), you may not have to act immediately. However, if you have less than $5,000 in your 401(k), your employer could remove you from the plan, meaning you’ll need to figure out what you’ll do with your 401(k) right away.

You might be wondering, what are your options?

  • Leave your 401(k) where it is
  • Roll it over to your new employer’s plan
  • Roll into Traditional or Roth IRA (outside of employer’s plan)
  • Cash it out (Lump-Sum Distribution)

With so many options, here are some important things to consider:

  • Did you borrow from your IRA?
  • What is your current account balance?
  • How important is creditor protection to you? (Workplace plans protect your money from collectors)
  • Quality of new employer’s plan
  • Investment options available to you outside of your employer
  • Compare plan costs – be sure to ask for the fee disclosure for each plan
  • Consider what you’ve invested and what you want to invest in

If you do leave your money where it is, keep tabs on the old 401(k). The last thing you want is a bunch of paperwork or your money sitting with a poorly performing company.

If you do rollover your money into your new employer’s plan, you’re not alone in the process. Your new company’s HR Department can help you through the process. Oftentimes, they have dedicated experts available for exactly this need. However, it is important to note that you have 60 days to re-deposit.

If you roll into an IRA, be attentive throughout the process. The last thing you want is for anything to fall through the cracks. Once again, utilize the advisors provided to you throughout this process and make sure you re-deposit within 60 days.

If you cash out your 401(k), be warned that many experts advise against this move. Whether you’re forced into cashing out or you truly feel this is the best move for you, experts recommend rolling the money into an IRA or your new employer’s plan. Using the funds for non-retirement-related expenses is a risky move that can leave you high and dry in your golden years – a rule of thumb no matter what option you choose for your 401(k). Even cashing out a 401(k) with a small amount of money contributed can lead to thousands and tens of thousands of dollars less in your retirement fund – remember even a little bit of money goes a long way when it is compounded for decades – that’s why experts recommend investing in a 401(k) as early as possible.

As your trusted Credit Union, we hope these tips and considerations help you through your decision process.