When Changing Jobs Don’t Forget Your 401(k)
Moving on to greener pastures in your career is always an exciting experience, but if you’re not careful you could end up with a lot less green in your retirement portfolio. How you handle the funds in your 401(k) could mean the difference between a happy and secure retirement and a hefty tax bill. Knowing the right moves to make now will help protect your funds well into the future.
Those who are changing jobs typically have three options at their disposal when it comes to their 401(k) plans:
1) Leave the 401(k) account with the current employer
2) Roll the money over into a self-directed IRA plan
3) Roll the money into the new employer’s 401(k) plan
4) Cash out the funds
Unless you have already reached retirement age the fourth option should not even be a consideration. That is because taking the money out of a tax sheltered investment like a 401(k) plan can trigger huge tax penalties. Workers who take this option may find that a large chunk of their savings has disappeared into thin air. And in addition to the tax penalties, the money taken out will not be subject to ordinary income taxes, further depleting the value of that important investment.