You\u2019re leaving your current job. Maybe you\u2019ve retired, or you\u2019ve taken a new job with another employer. Or maybe your current employer has laid you off.<\/p>\n
One decision you\u2019ll need to make is what to do with your employer-sponsored retirement account with your former employer (i.e. 401(k), 403(b), SEP IRA, profit sharing plan).<\/p>\n
Let\u2019s explore some of the options you have.<\/p>\n
KEEP YOUR ACCOUNT<\/strong> Why would this make sense?<\/p>\n Your old plan might have excellent investment options, and\/or low fees and expenses. Perhaps your new employer doesn\u2019t offer a plan, or if they do, it\u2019s not as attractive as the old one.<\/p>\n Note that if your account balance is less than $5,000, your former employer can require you to move it out of the plan. In that case, you have three options, which are described below.<\/p>\n PLAN-TO-PLAN TRANSFER<\/strong> ROLLOVER TO IRA<\/strong> The reason this is such a poor choice is that your distribution will be subject to income tax – state, if applicable, and federal. In addition, if you\u2019re under the age of 59 1\/2, you may be subject to additional 10% early withdrawal penalty. So, once the taxes and potential penalty are paid, you could well be left with less than half your original account balance. There are a few exceptions to the penalty, which you can review here<\/strong><\/a>.<\/p>\n WHAT SHOULD YOU DO?<\/strong> <\/p>\n <\/p>\n
\nIf your account balance is more than $5,000 you have the option to leave your account with the old plan. <\/p>\n
\nIf you\u2019ve changed employers, and your new employer sponsors a retirement plan, check to see if the plan accepts rollovers. More that plans aren\u2019t required to do so. If it does, and the investment options are adequate and the fees and expenses are reasonable, you may want to request a direct rollover. This involves the old plan\u2019s administrator moving your account balance directly to the new plan.<\/p>\n
\nIf you\u2019ve retired, or if your new employer doesn\u2019t sponsor a plan, the plan doesn\u2019t accept rollovers, or the plan isn\u2019t attractive, you can ask the old plan\u2019s administrator to make a direct transfer to an Individual Retirement Account (or \u201cIRA\u201d) in your name. You can establish an IRA with virtually any financial institution – as well as with many insurance and mutual fund companies – and no taxes will be withheld on the transfer. The IRS provides a lot of information on the rules and regulations for rollovers, which you can read here<\/strong><\/a>.
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\nTAXABLE DISTRIBUTION<\/strong>
\nGenerally speaking, the worst possible decision you can make regarding an old retirement account is to have the plan\u2019s administrator send you a check.<\/p>\n
\nIf it seems like the decision on what to do with your old 401(k) account isn\u2019t clear, you\u2019re not alone. The regulations can be complex, and they can change from time to time. That\u2019s why we\u2019re sharing a handy guide to understanding the options you have for your old traditional 401(k) account.<\/p>\nGet Your Free Guide to Rolling Over Your Old 401(k)<\/strong><\/a><\/span><\/h2>\n