Old and New

What to do with your 401(k) when you switch jobs

Your 401(k) is vital to having a happy, comfortable retirement. So when it comes time to switch jobs, you need to know what to do with it. Here are some options to explore.

Leave It

If you like the low fees associated with your current 401(k) plan, you can simply leave it with your old employer. However, there are a couple of catches. Typically, you can only leave your 401(k) if your balance is above $5,000. If your account is between $1,000 and $5,000, your old employer can create an IRA for you and roll the funds into it. As USA Today notes, the funds will be invested conservatively, and you might end up losing money after account fees. Another thing to note about leaving your 401(k) with your previous employer is that you can no longer contribute to it, so you need to open a new account with your new employer.

Roll Over

Instead of letting your old employer create an IRA for you, another option for your 401(k) is to roll it into your own IRA. You can have your former employer do a direct rollover, which is sending the money straight to your IRA provider. With your new IRA, you can invest the 401(k) funds exactly how you want.

Join Your New Employer’s Plan

Another option for your old 401(k) is to simply roll it into a 401(k) with your new employer. You’ll want to know the new 401(k) fees and make sure they’re okay with you. If it works, you’ll want to do a direct rollover to avoid charges and taxes. No matter what you decide to do with your old 401(k), avoid cashing out. You’ll have some of your funds withheld and be subject to early withdrawal penalties.

Chris O'Shea

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