Changing jobs is common. Rarely are working Americans with the same company from start to finish. Have you changed jobs in the past or are you thinking about it now? If you were saving for retirement with a 401k plan, you were doing a good thing. It is never too early to start saving for your golden years. With that said, a job change may leave your 401k plan feeling more like a hassle than an advantage. This is because you usually have to do a rollover.
Before highlighting a few of your 401k rollover options and their benefits, it is important to know you might not have to do anything. Some employers allow former employees to keep their retirement accounts, even after leaving the company. This is optional, so not all companies allow it. For most, this seems like the best approach. You don’t have to worry about comparing investment plans or losing too much money in the switch. You just keep your plan as is. It is nice as simple. With that said, there is a downside. Your company can charge you maintenance and management fees, along with others. Overtime, these will eat into your savings.
Since it can be costly to leave a 401k plan as is, this is a step rarely taken. After all, your job is to save money for retirement, not lose it. The next best option is to rollover your current 401k plan to the plan provided by your new employer. In this aspect, it continues as business as usually. In addition, if your new employer sponsors a 401k program, continue to add money. Let your investments go larger and continue to make more.
Unfortunately, this too isn’t as easy as it sounds. Not all companies in the United States sponsor 401k retirement programs. Even if your new employer does, the plan may not be as good as before. You may not get matching employer contributions. Remember, 401ks have their benefits. They allow you to save money for retirement. This money is not within your reach, without costly penalties and tax payments. Since the money is not easily within your reach, you are less likely to spend it as opposed to money in a traditional savings account. Even if your employer does not match contributions, but has a program, consider the rollover.
In addition to having 401k plans, many Americans have Individual Retirement Accounts (IRAs). It is possible to rollover your 401k into a retirement account. Unfortunately, there are fewer tax benefits and more restrictions. This should be used as a last resort. If your employer does not have a 401k plan, it is your best option. You are not charged fees, as you are with keeping your 401k with your former employer. You can continue to contribute to your retirement savings. How much will depend on the Individual Retirement Account (IRA) you select and the income level you fall into.
As you can see, you have many 401k rollover options. Which should you choose? The one you are most comfortable with and the plan that provides you with the best long-term financial stability. Do not just consider ease, but also consider long-term financial impacts. Remember, you can leave your 401k in the care of an old employer, but be prepared to lose money and be socked with fees. Always think about the money; ensure you have enough to comfortable retire, whether it is 30 years or 3 years.
For some individuals, 401k, IRAs, and retirement savings in general is more than they can handle or understand. If you are one of those individuals or if you do not want to gamble with your financial future, don’t make the decision yourself. In fact, you shouldn’t. Contact a financial expert or speak to those provided by your new and former employers. Get their expert advice on which 401k rollover option is the best for you.