In today’s fast-paced job market, switching jobs has become a common part of our career journeys. It’s all about finding what fits and chasing the roles that bring out the best in us. However, amidst this job hopping, there’s a silent companion quietly piling up in the background - your 401(k). Each job switch brings forth the question: What’s to be done with the money stacked up in your former employer’s 401(k) plan? Let’s simplify the crossroads you might find yourself at:
Cash It Out: Taking the cash might seem tempting. It’s a lump sum available right away. However, this path has its thorns. If you’re under 59 and a half, taking the cash out slaps a hefty tax and penalty on it, eating into the money that lands in your hands.
Roll It Over to an IRA: Rolling the funds into an Individual Retirement Account (IRA) is like giving your savings a new home, one that doesn’t change with every job switch. It’s a steady choice especially if job changes are frequent in your life or if your new job doesn’t offer a retirement plan.
Move It to Your New Employer’s Plan: If your new gig comes with a good 401(k) plan, moving your old 401(k) money there is like keeping the savings journey on the same track, just changing the scenery a bit. It keeps things streamlined and the retirement savings continue to grow.
Keep It Where It Is: If the old plan has been good and there’s at least $5,000 in there, you might just want to let it sit and grow. You won’t be able to add more money to it, but it’s a hassle-free choice.
Research is Your Friend: The right choice depends on a blend of factors - the rules at your old and new workplaces, your financial circumstances, and a bit of tax know-how. A chat with the HR folks at your company and perhaps a sit-down with a financial advisor could provide valuable insights to make an informed decision.
In a nutshell, your 401(k) deserves a bit of thought amidst the job-switch excitement. A well-considered decision now could spell a smoother financial road down the line as you hop, skip, and jump through your career.
References: