You may leave your job for greener pastures, start your own business or possibly even be made redundant. But what happens to your 401(k) contributions that are with your soon-to-be former employer? Well, several things can be done with the cash as allowed by the law. Here are some options for your 401(k) after you leave your job.
Move the funds to your new employer retirement package
Many employers give you a chance to roll over the funds to another qualified 401(k) plan. This is the best way to keep your funds safe and continue increasing your retirement nest. Moreover, this option does not have any tax consequences or penalties like some discussed below. Just ensure that you like the investment options offered by the new package.
Leave the cash with your former employer
Some employers allow you to leave your cash with them as long as it exceeds $5,000. The downside is you may not be informed of the investments that the cash is making. If you change jobs regularly and use this option, you may end up losing some money to investments that are not well handled. Therefore, only use this option if the benefits and opportunities provided by your former employer are unique.
Cash in the contributions
This is the least preferred method of dealing with your 401(K) contributions. First, you get a 20% tax cut on the cash and a further penalty of 10% if you are not yet 59 ½ years old. There can be other taxes eligible too, depending on your state. On top of this, you also lose the saving momentum.
Move cash to a Rollover IRA
A Rollover IRA is an excellent option if you change jobs often, giving you cash to invest in the future. This self-directed retirement account does not come with any tax consequences, and the options for investment which are available to you include mutual funds, bonds, stocks, ETFs and property, among others. On the downside, it is possible to make a wrong move and lose your contributions, which is why you will need advice from an IRA specialist.
As experts in 401(k) management and self-directed IRAs, Quest Trust is here to assist you in choosing the best options for your 401(k) contributions after you leave your job. We can also help you change your 401(k) account type and process your account transactions. Contact us today for more advice.