What to Do With Your 401(k) When Changing Jobs?

Every employer has their own set of benefits! However, they also come with their downsides. Sometimes the benefits aren’t enough to outweigh the downsides which is why people may decide to change their job. This can be stressful for people that have a retirement plan at their original employer.

Since these accounts are offered by your employer, you may have questions about what happens when it comes to these accounts if you decide to change your job. Luckily, it’s not as complex or stressful as it may seem! Today, we’ll explain what to do with 401K when changing jobs. There are four options:

  1. Keep the Funds in Your Former Employer 401(k) Account
  2. Roll Your Funds Into Your New Employer’s Plan
  3. Transfer the Funds Into an Individual Retirement Account (IRA)
  4. Cash Out Your 401(k)

Which of these makes the most sense for you, though? By the end of this article, you’ll have your answer. Keep reading to find out!

What Happens to Your 401(k) When You Leave Your Job?

Regardless of the specific circumstances, it’s very likely you’re not going to stay in the same job forever. Maybe you’ll find a better opportunity elsewhere – or maybe you’ll decide to go out into the world of self-employment. Whatever the case, you want to know what happens to your retirement savings when you leave your current job where you’ve been saving.

First, understand that certain jobs will have a “vesting period” for any sort of employer matching. That means if you leave the position before that period is up, any matches will be null and void. However, that doesn’t mean the rest of your individual contributions go away. You still have all that cash saved up – along with any returns you’ve earned!

There are a variety of options when it comes to your 401(k) when you leave your job. However, not every option is the best decision. The best way to find the right decision for your situation is by getting in touch with a professional.

What to Do with Your 401(k) When Changing Jobs: Our Advice

Ready to start figuring out what to do with 401K when changing jobs? Below, we’ll highlight the four best options you have for closing out, transferring, or staying in your former employer retirement savings account.

When it comes time to change jobs, you will need to figure out what to do with your 401(k) account. The best way to figure out how to handle this process is by getting in touch with a professional.  However, there are four options that you can consider:

  • Keep the Funds in Your Former Employer 401(k) Account
  • Roll Your Funds Into Your New Employer’s Plan
  • Transfer the Funds Into an Individual Retirement Account (IRA)
  • Cash Out Your 401(k)

Keep the Funds in Your Former Employer’s 401(k) Account

If you have at least $5,000 in your 401(k), then you have the legal right to keep the funds in your former employer’s account. You will want to check with your employer to see how long you have to make a decision. Generally, you will have between 30 days to 90 days. However, if your account has less than $5,000 then this may not be possible for you.

Roll Your Funds Into Your New Employer’s Plan

While every 401(k) plan is different, most plans accept rollovers from other retirement accounts. That means your new retirement account could accept funds from your old account! This is a popular option if possible because it is easy to manage and could provide new opportunities.

This is an especially good option for people who are looking for different investment options. For example, your new employer’s plan could have better investment options compared to your old plan! However, you also run the risk that your new employer may have fewer investment options so you want to confirm before making any decisions.

Transfer the Funds Into an Individual Retirement Account (IRA)

Another popular retirement plan is an IRA. This is a popular retirement plan because it isn’t just for employees. Anyone can contribute to an IRA! If you decide to move your 401(k) funds from your original employer into an IRA then you could see more control and flexibility. You have more investment options and can take charge!

Cash Out Your 401(k)

The fourth and final option you have when changing jobs is to cash out your 401K altogether. This is an option that temps many, as the prospect of having all the money back in your hands can be inviting! However, don’t go out and do that just yet.

Most professionals agree that this likely isn’t the best option for people. That’s because there are tax consequences that people don’t account for! One of the biggest tax consequences that you will face is a large tax bill. This can mean you reduce the overall amount you have depending on the taxes that you have to deal with.

Closing Thoughts on What to Do With 401K When Changing Jobs

There you have it – what to do with 401K when changing jobs. As you can see, you have quite a few options as far as keeping your retirement savings when you are let go or quit your job. These include:

  • Keep the Funds in Your Former Employer 401(k) Account
  • Roll Your Funds Into Your New Employer’s Plan
  • Transfer the Funds Into an IRA
  • Cash Out Your 401(k)

The best decision will depend on your current situation and what opportunities are available. That is why you will want to get in touch with a professional so they can answer any and all questions you have about your specific situation. With that said, you can find more advice on navigating retirement savings in our blog here at Daily Prosper.

Take a look at our article on whether or not 401K accounts are worth it, or our discussion on how 401K matching works. We have other in-depth resources on the IRA vs 401K debate, are 401K contributions subject to FICA, and how 401K loans work.

Explore our blog and educate yourself to achieve financial freedom & a sound financial future once and for all!

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