What To Do With An Old 401K

What To Do With An Old 401K

Switching jobs is an exciting time, but it’s important you don’t forget about the 401(K) you’ve been paying into at your old job.

Your 401(K) is your retirement nest egg. When managed correctly, it’s also one of the best ways to save - and potentially withdraw - money tax-free.

You have a number of options regarding what you do with the 401(K) you were paying into at your old job.

Each has its own pros and cons that may or may not be related to you depending on your individual circumstances.

3 Things You Will Learn:

Different Options on what to do with your old 401(K).
The pros and cons of each choice.
What to do to make the most of your tax-free savings.

So, let’s take a in-depth look at these different options and what they could mean for you and your old 401(K).

Leave It Where It Is

Most companies are willing to let employees leave their 401(K) savings in their plans when they leave their job. Obviously, your employer will no longer be paying into it, and you cannot pay more in either.

There are typically some requirements, too. Having a balance of $5,000 or more is almost always required. However, if it’s an option, it’s worth investigating as it might be the best option for you financially.

Pros

You can make withdrawals if you leave your job at 55 or older penalty-free.
The plan may have lower fees than your other options.
The plan may have better investment options than your other options.
Your money has a chance to grow tax-deferred while you weigh up your options.

Cons

In most cases, you will not be able to take a 401(K) loan against the balance.
To withdraw money, you will need to make contact with your previous employer.

Move Money to IRA

You can roll the balance of your old plan into either a traditional or a Roth IRA (individual retirement account). In fact, you should be able to roll part of your 401(K) into an IRA if you want to have the best of both worlds.

Most IRAs offer low-cost investment options and are easy to open through a brokerage firm or bank. By rolling your plan into an IRA, it’s often easier to track your overall funds as they’re consolidated into one account.

Pros

IRAs present more investment choices than 401(K)s, such as individual stocks, bonds, ETFs, and more.
It depends on the plan, but typically IRAs offer lower fees in the long-term.
If you choose a Roth account, you do not have to take RMDs at age 72.
It’s simpler - companies have a lot more flexibility regarding rules and regulations with 401(K)s than IRAs which the IRS standardizes.

Cons

You will not be able to get an employee-sponsored loan with an IRA as you would with a 401(K).
Protection from creditors varies from state to state, but it’s generally not as protected as a 401(K).

Roll Over to Current Employer

You can roll your old 401(K) over to your new employer. To do this, you’ll need to contact the 401(K) administrator at your new place of employment. They will give you a new account address. When you give this to your old employer, they can roll over your account.

A lot of people opt to do this to simplify managing their retirement funds. It’s a lot easier to pay attention to your fund if you move it over to your new employer’s plan.

In addition to this, you may avoid paying some taxes and can wave an early withdrawal fee. It’s something to discuss with your new employer as you need to know the terms of their plan.

Pros

There are federal laws providing protection.
Your new employer’s plan may have more favorable terms.
Your money will continue to grow tax-deferred.
It’s simpler to manage your retirement savings if you have just one 401(K).

Cons

Not all employers will accept a rollover. Make sure you inquire before making a decision.
Ensure you fully understand the new plan’s rules as they might be very different from your old rules.

Take the Cash

Cashing out an old 401(K) is an option. It may sound like a good option, especially if you need cash, but it comes with some drawbacks.

The big difference maker is your age. If you’re aged 59 and a half or below, you will have to pay ordinary income tax plus a 10% early withdrawal penalty. If you’re over 59 and a half, you’ll just pay income tax at your normal rate.

Pros

You can access a lump sum of money in times of emergency.
It may prove financially beneficial if you’re paying down debt or some other high-interest payments.

Cons

Cashing out early comes with a 10% penalty if you’re younger than 59 ½.
You risk losing money in the long-term if the market is down at the time you withdraw.

Before You Act

Before making any decisions, it’s vital that you speak with a financial advisor specializing in 401(K)s. There are many options available, and what may seem like a good idea now could end up costing you more in the long-term without calculating all the risks and outcomes.

There are also several rules surrounding individual 401(K) plans, different taxes and penalties depending on your individual circumstances, and a number of other things to consider that general advice might not cover.

Taking advantage of a financial advisor’s knowledge and wisdom is the only way to be sure you’re making the right decision. Luckily, at Evergreen Wealth Management we have an accomplished team of financial experts ready to help guide you through the financial planning process.

Meet Dave

Dave is a certified financial planner professional and Enrolled Agent (EA). Originally from the Seattle Area, Dave has over 19 years of experienced helping both individuals and institutions through the financial planning process.

He has a long history of success even before his time at Evergreen Wealth Management. Moreover, Dave has also conducted thousands of client meetings, helping build retirement and investment plans for clients in both the accumulation and distribution phase of life. To learn more about Dave and his journey to becoming one of Evergreen Wealth Managements accomplished financial experts – visit our website.

Learn more about Dave and managing your wealth by watching the video below.

In addition, you can start scheduling a meeting with Dave here.

Conclusion

If you have an old 401(K) and are unsure of which option is the best for you, you can book a no-obligation complimentary consultation with one of our financial experts.

We’re happy to answer any questions you have relating to your 401(K) to help you make the best financial decision for you and your family.

This material provided by Evergreen Wealth Management is for informational purposes only. It is not intended to serve as personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment. Please contact Evergreen Wealth Management for specific information regarding the holdings and trading activity of your account. Data provided is believed to be accurate, but its accuracy, completeness or reliability cannot be guaranteed. Investment advisory services offered through Regal Investment Advisors, LLC, an SEC Registered Investment Advisor. Registration with the SEC does not imply any level of skill or training. Evergreen Wealth Management is independent of Regal Investment Advisors.