A 401k is a great saving option for retirement.
A piece of your paycheck can be put away each month, and your employer often contributes a matching sum to help you boost your savings. And taxes on this money aren’t paid until funds are withdrawn from your account.
When changing jobs, or looking for a new job, it's essential to consider your options when it comes to this money. Our CFS* Financial Advisors at Elevations Wealth Management can walk you through the big questions when it comes to your 401k and can help you weigh the options to determine what is right for you. Here are a few choices you should consider:
Take the money to spend
When you leave your current employer, you can withdraw your 401k funds. This option is easy to do (your company can cut you a check), but is rarely a good idea. While you would be able to use the money to meet expenses, put them toward a large purchase, or invest them elsewhere, taking the lump sum can significantly reduce your retirement savings. And once you withdraw the savings, this money gets taxed, sometimes at a higher rate.
Leave the funds where they are
One option when you change jobs is simply to leave the funds in your old employer's 401k plan where they will continue to grow. Leaving your money in your old employer's 401k plan may be a good idea if you're happy with the investment alternatives offered or you need time to explore other options. You may also want to leave the funds where they are temporarily if your new employer offers a 401k plan but requires new employees to work for the company for a certain length of time before allowing them to participate. However, you may not always have this opportunity.
Transfer the funds directly to your new employer's retirement plan
If you obtain a new job and the employer offers a 401k plan, you can transfer your funds from your previous employer to your new one. A direct rollover is a seamless process that allows your retirement savings to remain tax deferred without interruption.
Rollover the funds into an IRA**
You can also roll over your funds to a traditional IRA. You can either transfer the funds to a traditional IRA that you already have, or open a new IRA to receive the funds. There's no dollar limit on how much 401k money you can transfer to an IRA.
There are many reasons to consider rolling your 401k into an IRA. They include:
- You generally have more investment choices with an IRA than with a 401K
- You can freely allocate your IRA dollars among different IRA trustees, and there's no limit on how many direct, trustee-to-trustee IRA transfers you can do in a year. With an employer's plan, you can't move the funds into a different trustee unless you leave your job and roll over the funds.
- The distribution options may be more flexible with an IRA than with your 401K.
- You have more control over your investments the closer you get to retirement.
To determine the best fit for your situation, let our CFS* Financial Advisors help you! They can further explain the options available and give you professional feedback to help you make smart financial decisions. We even offer financial planning calculators for 401k and IRA options.
401K Rollover Calculator | IRA Options Calculator
We’re here to help! Contact one of our CFS* Wealth Management professionals today at 303.443.4672 ext. 2240
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. (Elevations Credit Union OR “The credit union”) has contracted with CFS to make non-deposit investment products and services available to credit union members.
**Before deciding whether to retain assets in an employer sponsored plan or roll over to an IRA, an investor should consider various factors including, but not limited to: investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock.