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Leave your job, keep the money. 401(k) that is - 12/11/2021

Updated: Jul 29, 2022

Congratulations on your new job! I wish you the best of luck that this is a good fit and makes you happy. Don't forget to tie up the loose ends from your old job.

If you had a 401(k) or 403(b) ( I will use '401(k)' to include both plans as the options are the same) you will need to decide what your next step should be. Depending on the amount of money in the account, you may be able to leave it with your company, but would you really want to?

I don't recommend leaving your 401(k) with your former employer. It creates another set of statements you will be receiving. At the time when you will want to distribute you will likely need to go through the former employer for signatures. You have no idea what business or personnel changes they may go through that could affect your account or redemption procedures.

My preferred option is to rollover to my own IRA. If you don't already have an IRA, most retirement plans are held by an investment company that would be more than happy to help you rollover your retirement plan from a company plan to your own retirement plan (IRA) at their company. IRA's have more investment options than 401(k) plans, since they are not limited by the plan documents, the employer company, or the investment company. If you are going to rollover your 401(k) to an external IRA, have them do a direct transfer to the account, not write a check to you. Writing a check can create the appearance and limitations of a distribution, while doing a transfer directly to the account keeps all the recordkeeping clean.

Depending on your new company, you may be able to rollover the 401(k) from the old company's plan to the new company's plan. The benefit of this is having just one plan to manage. If you don't have a separate IRA already, this means only having 1 retirement plan to keep track of. You will be limited to whatever your new company's investment options are, but that shouldn't be a significant issue.

Did you know you may be able to take your 401(k) distribution and roll it into a Roth IRA? You would pay the taxes for the conversion, but it might be a great time for you to convert some assets to the long-term tax preferential treatment of a Roth IRA. Please consult your tax advisor to determine if conversion to a Roth IRA makes sense for you.

Last but not least, and not recommended unless absolutely necessary, you could take your 401(k) partially or fully as a distribution. You would be required to pay taxes on the distribution, plus the 10% penalty if you are younger than 59 1/2.

My preference has always been to rollover to your own IRA account. 1) I like the control and ownership of this decision 2) There may be preferential benefits for estate planning purposes.

Whatever decision you make, gather the information and consider both the short term and long term effects.

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