If you quit a job, you may be happy to leave behind some disgruntled co-workers and perhaps an overwhelming workload. But one thing you might want to take with you is your 401(k). And yet, contrary to what you might think, you may also want to leave it where it is. You usually have a few options to make when you quit your job and have a 401(k) who stays behind. If you don’t know what to do, we’ll tell you what you might want to do. You have a few options. A Financial Advisor can help you make informed decisions with your 401(k).
What should you do with your old 401(k)?
If you fancy withdrawing the 401(k) from the former employer’s plan, this may be your best bet – you can make a clean separation from your old company and no longer have to deal with that company.
You don’t have to, however; some people choose to leave it when there is more than $5,000 in it. In fact, you may want or may need to leave it in your former employer’s plan, at least for now.
For example, you might want to leave it behind if your new job doesn’t have a 401(k) or if you were laid off and are between jobs. Even if your new job has a 401(k), in fact, you may not be able to participate in it right away. You can withdraw your 401(k) from your employer’s plan, but you don’t need to be in a hurry to do so. You can keep it indefinitely, if you wish.
In fact, if you have a lot of money in the 401(k) and you’re happy with the plan, you might want to leave the money in there. That said, you will be prohibited from making 401(k) contributions. If you have a financial advisor, this would be an appropriate topic of discussion – whether to keep the 401(k) at the former employer or bring it elsewhere. You might also want to take a look at a 401(k) calculator.
All that said, this may be a moot point. If there is less than $5,000 and more than $1,000 in the account, your employer will transfer the 401(k) assets to an IRA of their choice, and this will usually be done within 60 days. If you have less than $1,000 in the 401(k), you will receive a check with the balance from your employer. But as noted, if it’s over $5,000 and you’re happy with the 401(k) account, there’s nothing you can do and your former employer can handle the retirement assets.
How to take your 401(k) with you
There are a number of options available for those wishing to withdraw their money from their old plan, assuming there is at least $5,000 in the plan:
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Direct bearing. It’s when you transfer money from one retirement account to another. If you have a new job with a 401(k) plan, as mentioned, you may have to wait until you’ve been there a bit before participating. Six months is fairly typical, and some employers even make employees wait until they’ve been on the job for a year before they can contribute to a 401(k). This is the longest time, by law, that an employer can make you wait. Rolling the money or doing what is called a direct transfer from the old 401(k) to the new plan will not be difficult; you’ll talk to your plan administrator, and they should be able to set it up quickly. All you should have to do is sign some papers.
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Indirect bearing. It’s not the best option for most people. In this case, your employer writes a check for the amount of your 401(k), minus 20% that goes to the Internal Revenue Service, and then you have 60 days to put it into a new 401(k). Some people may want to for cash purposes and use the money, then when they have more money to replace what they’re spending, they can put it back into the new 401(k), all within 60 days. But if you miss that two-month window, you’ll be hit with a 10% early withdrawal fee.
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Roll over the 401(k) in a IRA. This might be a smart option if you’re becoming your own boss or your new job doesn’t have a 401(k).
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Take the distributions. You can do this without being hit with a 10% tax penalty for early withdrawal, if you are over 59.5 years old.
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Collection. you will be hit with taxes, and you will have less savings for your retirement. Your financial adviser can try to talk you out of it, if you have one.
The essential
Your 401(k) may be worth a lot, but even if it’s only a little, you’re entitled to it.
But if you’ve quit a job and are excited to work somewhere else, don’t rush to withdraw your 401(k) just yet. You might be better off if, for now, your money stays at your old job, working hard and working for you.
Retirement Planning Tips
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A financial advisor can help you make sound decisions about your 401(k). Finding a qualified financial advisor doesn’t have to be difficult. Smart Assets free tool connects you with up to three financial advisors who serve your area, and you can interview your advisors at no cost to decide which one is best for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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If you use a 401(k), be sure to take advantage of employer correspondence available for you.
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