When you change jobs you have lots going on. And you also have a lot of decisions to make. Some decisions are more important than others of course.
One decision that may not seem too critical but is quite important is what to do with your 401k retirement account. The reason this decision is rather important is because of the financial ramifications of your decision.
Are you better off to rollover your 401k retirement account balance to your new employer’s 401k retirement plan or keep it in your old employer’s plan? Or should you rollover your balance to an IRA?
Let’s review those options so that if you do change jobs you are better equipped to make a good financial decision about your 401k retirement account.
401k Retirement Account: stays with your old employer.
- You may not have a choice on keeping your 401k balance with your old employers plan.
- Under new federal regulations, if your 401k retirement account balance is less than $5000, your old employer can force you out of the plan.
- The regulations allow accounts with balances under $5000 to be forced to do a rollover.
- The regulations cannot tell you where to place your rollover, that is flexible.
- You can roll over your balance to another 401k retirement account or an IRA.
- If your account balance is over $5000 you have more options.
401k Retirement Account: rolled over to your new employer.
- If you have the option of rolling over your balance to your new employer or keeping it with your old employer, learn before you leap.
- Learn about the different plans investment options.
- Before making the decision to rollover your account balance compare the investment options offered by your new employer’s 401k retirement plan vs your old employers plan.
- All 401k retirement plans are customized. This customization allows plans to offer different investment options.
- Under your old 401k retirement plan maybe you could purchase stocks or the self-directed brokerage option was available. But maybe your new employers’ 401k retirement plan does not offer those options.
- Then again, maybe your new plan has enough core investment options that satisfy your need for diversity. For example they offer mutual funds in large cap, mid cap, small cap, international, balanced and a cash equivalent. So you may be happy with those investment selections.
- Before you make a rollover decision, compare the services offered.
- Do either of the plans offer financial planning services.
- Not all 401k retirement plans offer financial investment representatives.
- Some plans offer financial advisers at no charge to you.
- These financial planners can help you make good decisions on your fund selections, help you identify your time horizons and your risk tolerance levels.
- 401k loan capabilities.
- Not all 401k retirement plans are set up for 401k loans.
- If loans are important to you, check it out.
- Before you decide on a rollover option, learn as much as you possibly can about the differences between the two 401k retirement plans.
Rollover your 401k balance to an IRA
- This option can be good or bad.
- You may pay more in service fees with an IRA.
- The fees in a 401k retirement plan are generally lower than an IRA. Shop around.
- One way to keep your fees down with IRA’s is to consolidate your IRA’s into one account.
- You may have limited investment options; but you may also have more.
- You cannot take a loan against an IRA balance, like you can with a 401k.
When you change jobs, you aren’t always given choices on some of the decisions.
But with your 401k you do have some options. Familiarize yourself with the 401k retirement plan rollover options that are available. If you ever do change jobs you will at least have that learning curve completed.