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Money minute: Rolling Over Your 401(k)

Money minute: Rolling Over Your 401(k)

Starting a new job can be a very exciting, intimidating and overwhelming experience.  Between learning new names, new computer systems and new procedures, it can be easy to see why the fate of your retirement savings might be the last thing on your mind.

A recent study found that one-third of employees changing jobs left balances behind in a prior employer’s retirement plan at least once during their career.  Reasons for not moving the funds include not being sure how to move the funds, preferring the investments in the old retirement plan, or not having time to move the funds.

Departing employees usually have four options for their 401(k) plan:

  • 1) Take the money in a lump sum

    Taking a lump sum is typically a bad choice as the money will no longer grow tax-deferred and there will be income taxes on the funds you withdraw. If you are under 55, there are additional early-withdrawal penalties.

  • 2) Leave the money in the employer’s 401(k)

    Review the options your 401(k) provides to ensure you have sufficient diversification choices and that you understand what the investment opportunities and fees are. Some investments you may like could be closed to new investors once you are outside of the employer’s 401(k).

  • 3) Roll the money to an IRA

    An IRA rollover can have several advantages. With an IRA, you can select your own custodian, compare fees and look for low-cost investments. Having one IRA can simplify the Required Minimum Distribution (RMD) process, as RMD is calculated on each IRA you have. Having it all in one place makes this process less complicated.

  • 4) Move the money into the new employer’s 401(k)

    Review your new employer’s plan options to see if it is beneficial for you to transfer your current 401(k) to the new 401(k) plan, allowing you to have all your money in one plan. If your new company has a retirement plan that allows rollovers, you may be able to rollover your funds right away. 

Take the initiative to seek out your rollover options in order to consolidate your assets.  The future of your retirement funds is in your hands. 

Article Topic Expert: Keith Kuzera

Keith is a Wealth Manager with SVA Plumb Wealth, LLC.

With more than nine years in the financial industry, Keith provides comprehensive financial planning to his clients as well as asset management, investment analysis and social security planning. He conducts educational meetings for plan participants in qualified retirement plans.

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