Changing jobs is always tough, especially when it comes to your 401(k). When you change jobs, one of the important decisions you need to make is what to do with your 401(k). Depending on the size of your account and your financial goals, you may have several options for your 401(k). Here are some of the most common options for what to do with your 401(k) when you change jobs.
Roll it over to an IRA
You may choose to roll over your 401(k) into an individual retirement account (IRA). This option gives you more investment options and greater control over your retirement investments. More control provides you with the ability to allocate your investment funds based on your specific investment goals and risk tolerance. You can also continue to make contributions to your IRA, unlike an old 401(k). When it comes to tax sheltered accounts such as an IRA, there are unique tax benefits that these accounts offer, that way you can maximize your growth while continuing to saving for retirement.
Investment options
IRAs generally offer a wider range of investment options, including stocks, bonds, and exchange-traded funds (ETFs), which can provide greater diversification when it comes to managing your retirement portfolio. Most 401(k) plans are limited to a small selection of investment options which make it challenging to customize based on your risk and goals. When converting funds to an IRA, you gain access to a number of investments. This opens the door for you to have more control over your funds.
Consolidation
Consolidation of Retirement Savings is so important especially if you have multiple 401(k) plans from previous employers, consolidating them into a single IRA can simplify your retirement savings and make it easier to manage your investments. The added benefit that consolidation is peace of mind. Having funds in old plans can be extremely challenging to keep track of especially when it comes to retirement. Consolidating keeps you on track to follow your investment strategy and know exactly where and what your funds are doing.
Other options
You have the option to keep your funds in your old employers 401(k), however the problem with this is you can no longer contribute to your account at this point. You will also no longer receive your company’s match. The second option you have is to roll it into your new employer’s plan, this however limits you to choose from only a limited group of funds within the new plan. The goal is to have as much control over your funds as possible, this limits your ability to so. Converting those funds into an IRA allow you to customize from a wide variety of investment options that aren’t offered in most 401(k) plans. Lastly you could cash out, however this is not recommended because there can be massive tax implications as well as early withdraw penalties.
Before making a decision, it’s important to consider your financial situation, investment goals, and investment options. It’s also a good idea to consult with a financial advisor to determine the best course of action for your specific circumstances.
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