If you are leaving a job where you had retirement benefits, you don’t want to leave those accounts behind. A recent study by Capitalize Research showed that American workers have left behind over $1 trillion in their old 401(k)s with an estimated average balance of $55,000. When changing jobs, it is important to have a plan for handling the retirement assets in your previous retirement account.
Transitioning to a new job often presents many challenges. Many people may leave their retirement funds with the intent to deal with them later, only to lose track of the accounts or forget about them altogether. Saving for retirement is a critical part of securing your financial future. Leaving old 401(k)s behind may make it more difficult to create a comprehensive investment strategy. The assets may be invested inappropriately, creating potential for lower returns. You may also be paying unnecessary administrative and investment fees to the plan sponsor. By staying on top of these accounts, you can ensure that your money is invested purposefully and with your long-term goals in mind.
There are options for transferring old retirement accounts. One option is a rollover to a Traditional or Roth IRA. This option allows you to maintain the tax advantages of retirement savings while offering greater flexibility in investment options. You can also simplify your record-keeping with an IRA by consolidating multiple old 401(k) accounts into one. Unlike employer-sponsored accounts, you are able to work with an advisor who can directly manage the IRA and provide guidance with investment selection.
If your new employer has retirement savings benefits, you may have the option to transfer your old 401(k) into your current employer plan, if allowed. While this option provides less flexibility, you can continue to grow your savings and maintain the tax advantages. There is also fewer accounts to manage which helps to streamline your retirement planning. Be sure to review the rules of your current plan and request additional information from the administrator if necessary.
If the old 401(k) has a small balance and you would rather not deal with a rollover or transfer, you are able to take a distribution. Distributions from a retirement plan will most likely have tax implications. Please consult your accountant or tax preparer before choosing this option. Many retirement plans allow the administrator to make a full distribution or automatic rollover of accounts with less than $5,000 after an employee separates from service. It is important to understand what is allowed by the plan agreement once your employment ends.
Each person’s financial situation is different. Here, at Wolfe Financial, we want to help you pick the best option for your financial future. We can discuss several options and figure out the best way to assist you in your retirement planning. Give us a call today to get started!