3 Options for Your 401k When You Leave Your Job


September 3, 2020

3 Options for Your 401k When You Leave Your Job

September 3, 2020

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Have you recently been offered a package from your company asking you to leave or retire? There are many companies doing this to employees to save money. Often people accept them without figuring out if it is a good decision or not. Below, are three options that you can do with your 401k!

Option #1: Rollover Your Old 401k to a New 401k

If you leave your job and begin working with a new employer, you should be able to rollover your old 401k to your new 401k. This will give your assets the ability to continue to grow, tax deferred, while consolidating all the accounts into one account. Otherwise your assets will be all over the place and hard to manage. Keep in mind, that your investing options will be limited to what is provided by your new employer’s plan. Also, if you have a balance of less than $5,000 in your past employers 401k, they can cash you out at any time; and if you cash this check, it will be taxed as ordinary income.

Option #2: Rollover Your 401k into an IRA

If you don’t see yourself finding a new employer, rolling your 401k balance into a Rollover IRA account allows you to avoid taxes and continue to have your money grow tax deferred. Most of the time, a Rollover IRA will allow you to choose from a wider array of investment options than many 401k plans. The key to moving your money into a Rollover IRA is that the money should go from your 401k custodian to the Rollover IRA custodian, either a bank or brokerage firm, directly. These transfers can be complicated, and we are happy to help you through this process. Click here to schedule a call with our team and we can help you see if this is an appropriate option for you.

Option #3: Cash in Your 401k

The market right now (August 2020) is around all time highs, yet here we are still going through the worst pandemic in over 100 years. There are legitimate concerns about investing in this market. When will it all come crashing down? If you were laid off, and having cash on hand is important, this could be your best option. Keep in mind that if you cash in your 401k, the withdrawal will almost always be taxable. Also, if you are under the age of 59 1/2 there could be an early withdrawal fee.

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