Whatever your reason for leaving a place of employment – retirement, termination, or just moving on – it’s easy to overlook one decision that can play a pivotal role in your retirement: what to do with your 401(k).
Make the right choice, and you can grow what has accumulated in that tax-advantaged account into a healthy nest egg. Make the wrong choice, and it could affect how much money is available for you to enjoy during retirement.
What Are the Choices for Managing Your Prior Employer’s 401(k)?
The choices may seem quite simple, but there are pros and cons to consider:
• Do nothing and leave your investments in your ex-employer’s 401(k), 403(b) or similar account.
• Cash out your 401(k) and settle with the IRS on the taxes and penalties due.
• Roll your 401(k) over to your new employer’s 401(k).
• Roll your 401(k) assets into an IRA without triggering a taxable event.
Doing nothing with your ex-employer’s 401(k) represents the path of least resistance, which far too many people choose.
One study “estimated that there are over 24 million forgotten 401(k) accounts holding 1.35 trillion in assets.”1
While employer-sponsored plans can offer some unique advantages–such as penalty-free distribution for retirees between ages 55 and 59½ and freedom from required minimum distributions (RMDs), if you are still working for the employer beyond age 72–the downsides are many. These downsides can include limited investment choices (many of poor quality), high administrative fees, and complicated RMD rules. (Click here to read the entire article)