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Financial Planning

401(k) rollover options

There are many options to consider when it comes to your 401(k).

Learn more by talking to our professionals

not sure what to do with your old 401(k)?

Whether you’ve been laid off or simply changing jobs, it can be a challenging time of transition as you adjust to your new normal. If you had a 401(k) with your former employer, you may be wondering what to do with the funds. There are many options to consider, each of which has pros and cons. Keep reading below to find out more!

There are four options to consider:

  • Option 1 - Keep your 401(k) with your former employer
  • Option 2- Cash out your 401(k)
  • Option 3 - Roll over the money into an IRA
  • Option 4 - Roll over the 401(k) into your new employer's plan

Option 1

keep your 401(k) with your former employer

pros

  • Investment money will continue to grow tax-deferred
  • You may be able to take penalty-free withdrawals, if you left your old employer between age 55 and 59
  • You may still be able to roll over to a future employer's plan at a later date

cons

  • Can't add any more money into the account
  • Limited investment options
  • Managing money across multiple accounts can be more challenging
  • Former employer may pass certain plan administration or record keeping fees through to you

Option 2

Cash out your 401(k)

pros

  • Cash on hand to pay down debt or other expenses
  • Flexibility to use the funds for other types of investments

cons

  • Your distribution will be subject to ordinary income tax (federal, state & local)
  • Federal income tax of 20% will be withheld from the distributed funds, if under age 59 1/2
  • You may be subject to a 10% early withdrawal penalty, if you are under age 59 1/2
  • Lose tax-deferred status, long-term growth is potentially lower and retirement saving reduced

Option 3

roll over the money into an ira

pros

  • No income tax or penalties with a direct rollover
  • Your investment continues to grow tax-deferred
  • Broader range of investment choices
  • Option to have an advisor manage your investments

cons

  • You will not be able to take a loan against your IRA
  • After age 72, you have to take annual required minimum distributions (RMD's) from your IRA
  • Any outstanding loan balances would need to be repaid prior to rolling over your investments, or you may be subject to taxes & penalties

Option 4

roll over your 401(k) into your new employer's plan

pros

  • No income tax or penalties due with a direct rollover
  • All your retirement funds are within a single 401(k)
  • May have the ability to make loans against your 401(k) account

cons

  • Investment selection limited to only those offered through the employer plan
  • Investment is subject to the plan rules designated by the new employer
  • Investment must remain with new employer plan until your employment ends
  • Withdrawal options are limited

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