Congratulations on your new job. Here are 3 options for your old 401(k)
Clients tell me that they just have to open their LinkedIn or check voicemails to see job adverts or hear from recruiters about the next shiny thing that’ll change their careers. One in five workers switched jobs last year, 33% identified as Gen Z and 25% as millennials and six in ten millennials are open to new job opportunities at all times, according to a recent study.
Your new job may offer you better career prospects or pay, but the anxiety of change will pound at your heart until your first day, week or even performance review. When you have so many things to think about, it’s not uncommon to forget about your old 401(k) or even where it is.
Here are three options for your old 401(k):
1. Leave it where it is
Most companies will allow you to keep your 401(k) where it is as usually it is provided by a 3rd party (Vanguard, Fidelity, Principal, Guideline). However, keep in mind, that in most 401(k) plans, the investment choices are limited. But some, especially larger employers can give you access to institutional share class mutual funds and low-cost index funds, which you may prefer. If you’ve moved several jobs in recent years you may have several old 401(k) plans which can become difficult to track and difficult to monitor the investment allocations across the accounts.
2. Move it to your new employer’s 401(k)
Your new plan may provide the option to move (rollover) your old 401(k) into the new one. This direct, or “trustee-to-trustee” transfer gives you the option to avoid paying taxes. This would make it easier to track your retirement savings in your new plan. Before making this decision evaluate the fees charged by the investment funds and go with the plan that offers the most choice and is cost-effective.
3. Move it to your Traditional IRA
As a busy professional, consolidating your 401(k)s into one IRA will save you a lot of time and hassle. An IRA opens up the entire universe of investing for you, from mutual funds, ETFs and more. However, it’s important that you review and compare the costs of these investments with the limited choices the 401(k) can offer.
How do I rollover a 401(k)?
Step 1: Open a Traditional IRA at a bank or brokerage firm or your Advisor can set this up for you. Or find out if your new employer has a 401(k) plan that allows rollovers from other plans. Evaluate the investment options and costs before making a decision.
Step 2: If you decide that moving your old 401(k) to your new plan makes sense contact your current employer and ask them how to make a direct rollover contribution. A direct rollover is the best option in terms of taxes and penalties. If you receive a check paid to you for the balance of your account, this will be an indirect rollover. You will have 60 days to move these assets to your new employer plan or an IRA. If you fail to do so in this time frame, you will owe taxes on the amount you failed to roll over. If you’re under 59 1/2, you will also have a 10% penalty.
If you need help deciding on which option is best for you, Adviso Wealth can help.
Adviso Wealth is dedicated to working with people just like you. We want to give you the clarity and confidence you need to achieve your personal and financial goals.
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