If you quit or lose your job, you have many decisions to make. One of these decisions is deciding what to do with the assets you’ve accumulated in your 401(k) account. Whether you were with your employer for a few years, or for decades, the decision you make will play a critical role in determining the course of your financial future.
You can essentially do two things with the assets in your retirement plan: allow them to continue growing tax-deferred, or take a distribution. These options can lead to very different outcomes, so you’ll want to weigh the advantages and disadvantages of each before making your choice.
If you want your retirement assets to continue growing for your future, there are generally three routes you can take:
Leave your money in your former employer’s plan. If your plan permits, you can leave your money in it, although you can’t add new contributions. However, if you leave your money in your former employer’s retirement plan, you are limited to the investment options provided by the plan, and may have restricted access to your money.
Move the money into your new employer’s plan. If your new employer’s plan accepts rollovers, this may help to consolidate retirement assets. However, you may be subject to a waiting period before the rollover is allowed, and your investments will be limited to those offered by the plan.
Roll your retirement assets into a traditional IRA. Depending on your individual situation, this “rollover” option could be your best choice. Rolling your assets to a traditional IRA offers you flexibility and a number of key advantages, including consolidation of assets, investment options, estate planning and distributions.
If your employer offers a Roth feature in your retirement plan, you have the option to contribute after-tax dollars. When you change jobs, you can roll your Roth 401(k) or 403(b) assets directly to a Roth IRA. Or you can roll your distributions into your new employer’s Roth 401(k) or 403(b) plan, providing the plan accepts such rollovers.
While losing your job is incredibly stressful, you can get through this difficult time, and you do have options. By working with a financial consultant, together you can evaluate your retirement plan distribution options to help make prudent financial decisions for today and for tomorrow.
