4 Options To Consider With Your Old 401(k) Plan

Changing jobs can be an exciting yet overwhelming experience. Amid the hustle of new responsibilities and settling into your new role, there's an important financial decision you need to make: what to do with your old 401(k). This decision can significantly impact your retirement planning, so it’s crucial to understand your options.

Let’s break down the steps you can take to make the most out of your old 401(k) after a job change.

1. Leave Your 401(k) with Your Former Employer

One of the simplest options is to leave your 401(k) where it is. If your account balance is over $5,000, most plans allow you to keep your funds in the old employer’s plan. Here are some pros and cons:

Pros:

• Familiarity: You’re already acquainted with the plan's investment options and fees.
• No Immediate Action Needed: This allows you to take your time deciding on the best course of action.

Cons:

• Limited Investment Options: Your choices are restricted to what the old plan offers.
• Potential Higher Fees: Some plans may charge higher fees for non-active employees.

2. Roll Over to Your New Employer’s 401(k)

If your new employer offers a 401(k) plan, you might consider rolling over your old 401(k) into the new one. This can consolidate your retirement savings and simplify your financial management.

Pros:

• Simplified Management: Having all your retirement funds in one place can make tracking and managing your investments easier.
• Potential for Better Investment Options: The new plan may offer more or better investment choices.
• Loan Options: If you need to borrow against your 401(k), having all funds in one place can make this process easier.

Cons:

• Waiting Periods: Some employers have waiting periods before you can enroll in their 401(k) plan.
• Potentially Limited Options: The new plan might not offer as many investment options as you’d like.

3. Roll Over to an IRA

Rolling over your old 401(k) into an Individual Retirement Account (IRA) is another option. This can provide you with more control and a broader range of investment choices.

Pros:

• More Investment Choices: IRAs typically offer a wider array of investment options compared to 401(k) plans.
• Potentially Lower Fees: IRAs can have lower fees, depending on the provider.
• Flexibility: IRAs offer more flexibility in terms of withdrawals and investment changes.
• Easier RMD Management: Rolling over your 401(k) into an IRA can simplify your life when it's time to take Required Minimum Distributions (RMDs). Furthermore, consolidating accounts can reduce the complexity of managing multiple RMD schedules if you have more than one retirement account.

Cons:

• No Loan Options: Unlike 401(k) plans, IRAs do not offer loan options.
• Complexity: Managing an IRA can be more complex than a 401(k), especially if you’re not well-versed in investment management.

4. Cash Out Your 401(k)

While cashing out your 401(k) might seem tempting, especially if you could use the money, it’s generally not recommended due to the significant tax implications and penalties.

Pros:

• Immediate Access to Funds: You get instant access to your money, which can be helpful in a financial emergency.

Cons:

• Taxes and Penalties: You’ll likely face a 10% early withdrawal penalty if you’re under 59½, plus federal and state income taxes.
• Reduced Retirement Savings: Cashing out diminishes your retirement nest egg and can severely impact your long-term financial security.

Making the Decision

When deciding what to do with your old 401(k), consider factors such as your current financial situation, retirement goals, and investment preferences. Consulting with a CFP®️ professional or a fiduciary retirement planner can provide personalized advice tailored to your unique situation.

At Haywood Wealth, we specialize in helping clients navigate these crucial decisions. Our comprehensive retirement planning services ensure you make informed choices that align with your long-term financial goals. Whether it's rolling over to a new 401(k), transferring to an IRA, or evaluating other investment options, our team is here to guide you every step of the way.

Transitioning to a new job is a perfect time to review your financial landscape and make strategic decisions for your retirement planning. By understanding your options for your old 401(k), you can optimize your retirement savings and ensure a secure financial future. Take the time to evaluate your choices, seek professional advice, and choose the path that best aligns with your financial goals.

Want help evaluating this important decision? Contact us today to see how we can help.