Understand Your Rollover Options

When you leave your job, and your previous 401(k), you have four options of what you can do with your balance.  The options are as follows: leave the money in your old plan, roll it into your new employer's plan, roll it into an IRA, or withdraw the balance.  Knowing which option to choose can be tough, so we have put together a little cheat sheet for you.

Here are some possible scenarios:

  • When you should stay in your old plan: If your old employer's plan was top notce and much cheaper, maybe it is a good idea to leave your money in the old plan. Your won't be charged any fees to leave it there and unless it is below $5,000, you are free to let it grow inside the plan. Also, now you will have to track both accounts and will be getting more statements in the mail.
  • When you should roll over into your new plan: If you are able to contribute to your new plan right away and the investment options are managed well, meaning the funds are constantly monitored and the fees are low, it would be wise to roll your money into the new plan. Ask HR what they think you should do, normally they will know whether or not the plan is properly managed.
  • When to roll into an IRA: If your previous employer's plan was expensive or didn't perform well and your new plan isn't up to par either, maybe its time to look at IRAs. Whether you are rolling over from a Roth or Traditional retirement plan, there are IRA options available. There are also brokerage accounts that offer far more investment options for you to choose from. We can help you decide where to go with your previous plan's balance.
  • Whatever you do, do not cash out. Unless you REALLY need the money, this is always the worst option. By withdrawing your balance you will pay income tax on the money, plus a 10% penalty for early withdrawl if your under the age of 59 and half. If this is from a Roth 401(k) only the earning are subject to the penalty and income tax. Either way, it is your retirement savings and should not be taken lightly, no matter what the amount.

I'm Ready to Rollover

When you have decided it is time to roll over the balance, where ever the destination may be, the first step is always to contact your previous employer's HR department.  Should you choose to roll the balance into your new plan, the next step would be to contact your new employer's HR dept and find out the necessary steps, which are always accompanied with paperwork.  Should you be rolling your balance into a plan that we service, we can help with the paperwork and your transition.  If you want to roll your old balance into a new IRA or a brokerage account we can also assist you through the process and help you identify a number of different investment vehicles you should consider.

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