Your Retirement Money Options
When you start a new job the last thing you may be thinking about is the money in prior employer’s retirement plan. Your negligence may be due to a misunderstanding of the options available to you. Let us help you understand those options so you can choose which one works best for you.
Option #1 – Leave The Money
There are advantages and disadvantages to this option. A disadvantage could be the limitations involved. You will be limited to the investment selections within that retirement plan. If you were comfortable with the investment selections and they continue to grow in value, leaving the money in your old employer’s plan may not be a disadvantage for you. The advantage is that your money will remain tax-deferred; you will not pay taxes on that investment money until you withdraw it at retirement.
Option #2 – Move It Over
You get to start over with a new selection of investment choices; that may be good or bad. It will be important for you to compare the investment choices being offered in the old plan and the new one before moving your money.
Also keep in mind that your new employer may offer a higher match so more money will be invested into these new investments.
Option #3 – Take The Cash
You can always take the money in your prior employer’s retirement plan in cash. That is not the best plan but you do have that option. The biggest disadvantage is taxes. You will pay taxes on the money because the IRS considers taking the cash from your 401k plan to be a withdrawal. Any withdrawals from a 401k retirement plan prior to age 59 1/2 will be subject to income taxes plus a 10% penalty tax; that’s the law.
You will not pay taxes if you leave your money or move it over to your new employer’s plan. You will only pay taxes if you exercise Option #3 by taking the cash out of the plan.
Option #4 – Roll It
If you do not like Options 1, 2 or 3 you can always roll the money into an Individual Retirement Plan (IRA). This option can give you the most investment freedom; you will not incur taxes, you can choose your own investments and even your investment vehicle. You can choose to roll your 401k retirement plan money into stocks, mutual funds, certificates of deposit or even annuities.
Even though annuities are an option for a retirement plan rollover it would be an error of judgement if we did not point out that some financial professionals frown upon investing retirement money into an annuity because an IRA is already a tax-deferred investment vehicle. However, annuities provide a level of protection that other retirement investment vehicles do not; a death benefit.
If you forgot about the money in your prior employer’s 401k plan during the chaos of starting a new job you now know your options. Go get your money.