Changing jobs and companies can be an exciting opportunity, but you have a choice to make. What will you do with the retirement savings you have accrued in your 401(k)? Consider these four choices:
1.
Withdraw the
money and don't reinvest it. This is usually the worst choice you can make.
Generally, you'll owe taxes on the distribution at ordinary income rates.
(Special rules may apply if you own company stock in the plan.) Unless you're
over age 59½, you'll pay a 10 percent penalty tax, too. More importantly, you'll
lose the opportunity for future tax-deferred growth of your retirement savings.
And once you have the funds readily available, it's all too easy to spend the
money instead of saving for your retirement.
2.
Roll the
money into an IRA. You can avoid immediate taxes and preserve the tax-favored
status of your savings by rolling the money into an IRA. This option also gives
you full control over how you invest the balances in the future. You have a
60-day window to complete the rollover from the time you close out your 401(k).
However, you should always ask for a "trustee-to-trustee" rollover to
avoid potential problems.
3.
Roll the
balance into your new employer's plan. If your new employer allows
it, you can roll the balance into your new plan and invest it according to your
new investment choices. However, there may be a waiting period before you can
join your new plan.
4.
Leave the
money in your old employer's plan. You may be able to leave the balance in your old
plan, at least temporarily. Then you can do a rollover to an IRA or a new plan
later. Check with your employer to see if this is an option.
Call us at (518) 798-3330 if you need help making the right
choice for your particular circumstances.
