What to do with your retirement savings is one of the biggest decisions you have to make when changing jobs. If you have over $5,000 in your 401(k), your previous employer is required to allow you to keep your retirement savings in their 401(k) plan should you decide that is the best option for you. Before you decide, consider the advantages and disadvantages of leaving your 401(k) behind.
Reasons to Leave your 401(k) with Your Old Employer
- One of the most common reasons you may want to leave your 401(k) plan with your previous employer is that you have a waiting period to participate in your new plan. Leaving your funds in place gives you the opportunity to continue to grow your savings on a tax-free basis while you wait.
- You may also consider leaving your 401(k) where it is if your past employer has superior investment options compared to your new employer.
- If you own company stock as a part of your 401(k) plan, transferring from one account to another may have tax consequences. In this case, keeping your 401(k) in place with your old company may make the most sense.
Reasons to Transfer Your 401(k) to Your New Employer
- Once you leave your company, you may be subject to higher administrative fees than you paid as an employee.
- You may also have limited access to your account if you change jobs. Making changes to your account will likely become much more difficult.
- Your past employer is not required to allow you to continue to make contributions to your 401(k) account. This will greatly limit your ability to maximize the long-term value of your savings.
- When you are no longer employed, you lose the advantage of employer contribution matching.
Keep in mind that leaving your 401(k) with your old employer is only one of the options available to you when you change jobs. In addition to leaving the funds in place or transferring your 401(k) to your new employer, you also have the option of rolling over your 401(k) to another retirement account like an individual retirement account (IRA) or cashing out the balance of your savings. Which option is best for you depends on your unique set of circumstances. That said, leaving your savings with your previous employer even after you leave the company may give you a little extra time to decide how to best manage your retirement investments.
Our team at Wickham Financial & Insurance Services can help guide you through all of your options when you change jobs to determine which is the best for you. Throughout the process our focus is on building a long-term relationship. Our first step is to get to know you and understand your individual financial situation before offering any advice. We look forward to the opportunity to meet with you, get to know you on a personal level, and assist you with planning your financial future.
Any information provided has been prepared from sources believed to be reliable but is not guaranteed, does not represent all available data necessary for making investment decisions and is for informational purposes only.