I quit my job — What should I do with my 401k?
When you leave your job, you have several choices regarding your 401(k). These options for a 401(k) rollover are pretty much universal, meaning they apply to every 401(k) and to every job change situation. Your options are:
Cash the 401(k) Plan and Receive a Full Pay-Out
I’ve listed this option first because it has the most serious ramifications.
First, if you take a full payout, you will have to pay taxes on the plan — usually 20% off the top when you take the money out, and a 10% penalty when you file your taxes if you are below the age of 59-1/2.
Second, if you have no other retirement plan and you take a pay-out on your 401(k), then you now have no more retirement money. You must start again from the beginning, and this puts you behind.
If you take a full payout but then decide you shouldn’t have done so, there’s still hope. The IRS has provided the 60-day rollover rule, which allows you take the money you withdrew from your 401(k) and roll it into an IRA within 60 days. You still pay taxes at the time you take the money out of the 401(k), so it’s your responsibility to find the cash to bring the IRA contribution to the level of your 401(k) withdrawal. However, when you file your tax return, you get a credit for the taxes on the 401(k) and for the 10% penalty. (Documentation is required.)
Related >> Frequently Asked Tax Questions
Roll the Money to a New 401(k) Plan
This option generally has no negative ramifications. Simply take the money from your old 401(k) plan and move it to the 401(k) plan at your new job. The money moves from one account to the other. There are no taxes or penalties involved. Best of all, you keep all your retirement money and can now add to it in the new 401(k) plan.
However, if there is a waiting period until you can participate in your new employer’s 401(k) plan, be sure you can let your money sit in the old 401(k) for the required time frame. If you’re not allowed to do this, all is not lost. You have another option.
Roll the Money to an IRA
This option also usually has no negative ramifications. You can always take the money from your old 401(k) and roll it into an IRA. The transfer will occur without incurring taxes or penalties. Moreover, once the money moves into the IRA, you can continue to contribute to the IRA at your discretion. You’ll have more investment choices available, and the IRA will have fewer restrictions than your 401(k) plan.
You can also roll your 401(k) money into a Roth IRA, but you need to remember that a 401(k) plan is a pre-tax plan, and a Roth IRA is an after-tax plan. You will need to pay taxes if you move from a 401(k) to a Roth IRA, unless you are rolling after-tax money. Be sure to ask your 401(k) representative about this option for further details.
Related >> How to Start a Roth IRA
Leave the Money in the 401(k) Plan
This option has a few ramifications, but they aren’t serious. If you meet the minimum amount required to keep the money in your existing 401(k), then you can leave the money alone, perhaps giving you time to decide you decide what to do with it. Be sure you to find out what the minimum required amount is for your particular 401(k) plan. These minimums can range from $1000 to $5000. (Each plan is different.)
If you decide to leave the money in your existing 401(k), there are several things to consider. First, you will not be able to make additional contributions to the plan. Remember, a 401(k) is a payroll deducted plan; if you leave your job, there is no payroll from which to contribute. Second, you must keep tabs on the 401(k). The plan can change hands from one record keeper to another, and the onus is on you to track where the plan moves if this happens. Third, you typically cannot roll into a 401(k) plan if you are no longer working for the company. However, you will want to check the rules to see if this rule applies to your plan.
Conclusion
These are the choices for your 401(k) plan once you leave your current job. Be sure to research the options that apply to your situation. Remember that you are making a decision that will affect your retirement savings, affecting how much money you may have when you retire. Getting the facts will make this transition easier for you.
This article was written by Todd at The Working Dollar.
Note: If you’re faced with this situation, be sure to read the comments on this entry for additional discussion on the nuances involved.
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There are 87 comments to "I quit my job — What should I do with my 401k?".
I am wondering, if I already have a Roth IRA, can I rollover my 401K into my existing Roth IRA? Or I have to open a new Roth IRA for this? are we allowed to have multiple Roth IRA?
Also, if my new job also offers 401K with the same investment company(Fidelity), do I still need to worry about rollover,cash out or any of these? Can I just leave it as it is?
Yes you can, but, probably shouldn’t. Since your 401k is a pre-tax account & the Roth IRA is an after tax account, if you rollover your 401k into a Roth IRA, you will have to pay taxes on the entire rollover amt.
I elected to cash out my 401(k) after leaving my last job to pay for the costs of relocating, buying a new house, etc. Looking back, it was a terrible move because of the “stupid tax” I had to pay! If I had it to do over again I would have rolled it to an IRA, and eventually converted to a Roth when I had to money saved to cover the taxes on a conversion.
I just actually did the same thing. I cashed out and of course spent the funds. It was about 12,000. How much tax do you think I am going to pay on this?
The only option I would ever consider, which is what I did after recently leaving an employer, is to move the 401k money to a traditional IRA account. I would NEVER consider cashing out a 401k plan – as Todd states, the penalties are just too high to make it worthwhile. I would not move it to a Roth IRA, because I don’t want to pay the taxes today. I would not move it to a new 401k because an IRA account gives me more control over the money. Similarly I would not leave the money in the 401k because that 401k limits what I can do with my money.
Now, as to why I prefer the traditional to the Roth IRA, it’s because I don’t trust the members of Congress to keep their promise that the Roth IRA will be tax free. Perhaps I’ll be proven wrong on that one, but since the difference between a Roth and a traditional IRA is not very significant in the end, I’ll take the tax break today.
But that’s just me.
For Mrs.ThePoint,
You can’t roll from a 401K into a Roth IRA directly unless your 401K is a Roth 401K. You need to set up a traditional rollover IRA and then convert to the Roth. Remember, you will face tax consequences for moving assets from a 401K or traditional IRA to a Roth. And, there are income restrictions on doing this so make sure you meet them.
As far as Fidelity, you will still have to roll over. The retirement plan is dictated by the plan documents, not the custodian. So just because Fidelity does both plans doesn’t mean you can continue contributing once you leave one company. The rollover will be easier though since they are both Fidelity plans.
In general, I believe rolling your 401K to an IRA is your best bet unless the 401K plan has really low cost options, which is rarely the case.
One BIG caution on the 401k rollover for people who retire after they’re 55: There’s a federal rule that says you can take penalty-free distributions from your 401K. The distributions are, of course, subject to income tax, but NOT the early distribution penalty. If, however you roll it over into an IRA first you are stuck and must wait til you’re 59 1/2 to take penalty-free withdrawals, unless there are specific exceptions that apply in your plan. I retired at 55 and am now 58. Nearly every time I call Vanguard (where my 401K and IRAs are held) I get a pitch to roll my 401K over into one of their IRAs. When I mention the problem of not being able to take penalty free withdrawals if I do that sometimes even their own people are unaware of the 55 and retired exception. Your 401k’s plan rules can override the federal rule, so you’ll want to check with your plan administrator, obviously.
I am also wondering, if it is worthy for me to set up my 401K right now, because I change job very often. (almost once a year)
My current job is offering no match for my 401K and the new job is not going to offer match until I work there for full 2 years, by than, I might be gone again.
I know if the company offers match I should definitely take it, but how about with no match?
I don’t understand 401K very much. Would often transfer funds to new company’s 401K hurts my investment?
(I am a saver, frugal person. So I won’t spend the money even if I don’t put them in 401K)
thank you so much.
I have to agree with Daniel above.
As someone with a high likelihood of being in a much high tax bracket in the future I am often torn. Do I pay taxes now by contributing to a Roth IRA with its greater potential reward or do I take my tax break now by contributing to an IRA/401k.
I have decided to take my smaller tax break now rather than have the potiental of paying taxes twice. I just don’t see how we can fund our federal programs in the future.
Confusion about 401(k)s in general is widespread. Proper handling of rollovers for a workforce that will change jobs many times before retirement is always vital. For both reasons, thanks for an article on this ever-timely subject.
@Mrs.ThePoint (5) – the main benefit for you of a 401k over an IRA account would be that the income limits might be higher. If memory serves, I believe the 401k contribution limit is 15% of your annual salary. If that is higher than the IRA limit, and you can save that much, it’s probably worth creating a 401k at each job and rolling those into an IRA account as you leave each job.
Roll it into an IRA so you can invest it in index funds or investments of your choosing. The mutual funds in your 401k plan will offer higher fees and lower returns than what you can do with index funds. Now I need to follow my own advice and roll over my 457b. Good luck.
Read Jim Cramer’s new book (Stay mad, I think is the title). He agrees on this. Your investment choices in an IRA are much better than the limited ones of your 401k plan.
To expand on Daniel’s point, the negative ramification of rolling into your new 401k or keeping it in the existing plan is investment choices. Most 401ks have a limited number of funds in which the money can be invested. In some 401ks it is extremely limited. A rollover IRA gives the investor many more investment choices.
It doesn’t have to be all of one and none of the other. You can split it and roll a portion into a Roth IRA and the balance into a traditional IRA. No matter what you do, don’t take the cash out.
Pesonally, if you can afford to take a bit of a tax hit now, I highly advocate the Roth (but naturally I am operating under the assumption that congress will keep it’s promise to let these dollars flow out of the plan tax-free).
As far as what to invest in once you have chosen a plan type – look at a lifetime fund that balances to your target retirement date, or if you’re conservative – bank CDs are always a safe way to go.
Sometimes it makes sense to leave your money in a 401(k). You may have access to funds that you wouldn’t have access to elsewhere, such as DFA funds, or you may have access to funds that are closed to new investors.
Warning: the devil’s in the details for a lot of these things. For example, if you’re moving money between before-tax plans, the law allows you to accept a payout and send the money to the new plan — but the law places hard limits on how many days you have to get the money into that new plan. If at all possible, have the plan administrator handle the money; the law says that they can transfer the money without risking making it look like a cashout.
-Wm
Mrs. ThePoint,
You can actually roll over a regular pre-tax 401(k) to a Roth IRA – however your pre-tax 401k will be taxed and incur a penalty for early withdrawal since it is moving from a pre-tax account to an after tax account.
If you do not want to incur penalty or tax, then it is best to roll from a pre-tax plan into another pre-tax plan. Keep in mind Roth is after tax. Also, you can have multple plans, but there is a 402g limit that the IRS will place on you for contributions into 401k plans, as well as Roth and traditional IRAs. Hope that helps.
J.D., Thanks for allowing me to guest post. Hope everyone benefits.
FWIW, Daniel’s advice is similar to Dave Ramsey’s.
When you leave a company, *ALWAYS* get a direct transfer rollover into a traditional IRA. The reason is simple: the 401K may have a few mutual funds and other investments to choose from, and an IRA opens up to thousands of mutual funds alone. And staying with Dave Ramsey’s advice, never invest long term in anything other than mutual funds [with at least a 10 year track record of 12% returns].
Also, if your 401K is in a lot of your company’s stock, roll it out so fast that your head spins. If you haven’t left the company yet, change your distributions to get out of company stock. Ever heard of Enron or Worldcomm?
Rolling your 401(k) into an IRA gives you total control over _your_ money. You don’t have to worry about the plan sponsor changing the investment choices; you don’t have to worry about the plan sponsor at all because they are out of the picture.
To roll funds out of a 401(k) the trustee of the plan typically has to sign off on the transfer. I have seen situations where a small company goes bankrupt, changes ownership or moves and getting that trustee’s signature becomes _very_ difficult.
Rolling the funds out eliminates that issue all together. I’ve seen it take as long as six months to get a rollover to happen. Not for the lack of effort on any one person, it’s just finding that person who can sign as trustee.
This delay could become extremely detrimental if there comes a point that you need the money now.
What are your options with a 403(b)?
SavingDiva – 403(b) should be similar to 401(k), since they are both retirement savings, except the 403(b) is for health professionals, nonprofits and schools instead of corporations.
Remember folks, 401(k) refers to the tax code, section 401, subsection “k” and 403(b) is section 403, subsection “b”.
@jtimberman – as I mentioned above, it’s not always the case that the 401(k) has worse options than an IRA. Some 401(k) plans offer funds that wouldn’t be available to you elsewhere. If they’re good funds, it makes sense to stay in.
Anne,
Are you a millionaire? Have you helped thousands of people with this process?
Dave Ramsey is, and has, so I’ll listen to him instead. Thank you though.
LOL… no need to get snappy. He was just politely giving advice as requested.
Why the chip on your shoulder. All just trying to learn from each other!
@jtimberman – I really don’t care what you do with your money; I’m just offering a counterpoint to Dave Ramsey’s blanket advice. Incidentally, Dave Ramsey himself says that you shouldn’t make investment decisions just because he says to; you should be sure you understand them yourself. If the reason for rolling over a 401(k) is to get access to better funds–well, this rationale doesn’t always apply.
Actually, starting in 2008, you can make a direct conversion from an employer sponsored plan to a Roth. You’ll have to pay the taxes (no penalty)…
If you are thinking about doing it, you may want to get it done before the tax rates potentially pop upwards in 2010.
-Ken
Yep, he says that too. And I understand mutual funds, so I follow his advice on investments.
Well in my scenario, it makes much more sense to follow Anne’s advice.
I work for IBM, and my 401k plan has great investment options, I have access to low low low low fee mutual funds (1 cent per $100) for passively managed index funds.
I will be going to grad school full time in the fall, and it makes more sense to leave my current funds in my existing 401k.
Since I won’t have any money to contribute to retirement while I’m in school, it’s ok to leave it invested where it is. It is more cost effective than rolling it into a Vanguard low fee mutual (index) fund. I have compared these as I have my roth IRA through vanguard in the lowest fee mutual funds possible.
Anne’s advice makes sense for many scenarios. Obviously it’s not applicable in every case. As with most things in life, your millage may vary and things need to be adjusted for your unique circumstances.
Anne is right that some 401(k)s offer better investments than those available to individuals. For example, the Vanguard 500 charges institutional clients (401k) half of what it charges individual investors (Rollover IRA). 401(k) custodians can also use their size to negotiate lower fees with investment managers.
But yes, many 401(k)s are expensive and don’t offer good investments.
P.S. James Crocker, exactly. The biggest companies are best at this. IBM probably employs a whole department to deal with the 401(k) custodians and advisors.
I would recommend anyone who is in a rollover situation check out the concept of a “Stretch” IRA. Because of how distribution rules vary for 401(k)s and IRAs, it can be very beneficial for your heirs if you roll over the old 401(k) to an IRA as opposed to a new 401(k). Should you pass away before all the money in the IRA has been disbursed, and if you leave the money to your children, they are allowed to take distributions calculated over THEIR lifespan.
Ed Slott has written a number of books on this topic.
Never, ever cash out.
Rollover into an IRA, gives you more flexibility than a new 401k would.
Everyone’s situation is different and I think the article sumarizes the options well.
I agree with Daniel and the others who are saying to roll to an IRA. That’s really the only decent option, although some company’s 401K may be so brilliant that Fidelity and Vanguard can’t compete. Doubt it, but possible. If you switch jobs often, you can roll each 401K over into the same (Rollover) IRA, to manage it in one place.
If you’re in a pension program that requires vesting over 5 years of so, DON’T pull it out unless there’s no chance you’ll ever work under that pension plan again. I’ve met people who pulled out of gov’t pension plans, then went back to work for a different agency 15 years later and had to start from scratch on the 5-year vesting.
It’s important to have different tax situations to draw from in retirement. So have a Roth and a Traditional, and in retirement, you can pull out a minimally taxed amount from the Traditional, and untaxed from the Roth, to keep your taxes low or non-existent. If you only use Roth money in retirement, you lose much of the tax advantage it provides.
Is this the same for a 403(b)? I’m in this exact situation where I am thinking about rolling my old 403(b) into my new 401(k), but am not exactly sure how to go about it.
A great, timely article as always.
This is good general advice but, I agree with others that the devil is in the details. A company sponsored 401(k) may give you access to institutional class funds (lower cost) compared to the retail class funds (for the same mutual fund). I also have access to a 401(k) Roth via work and I can not invest in a Roth IRA.
You need to have a good understanding of the options of your current plan and the options of a new plan at a new job and private options (i.e. IRA). But don’t cash it out just because you might be confused.
Does anyone know if is possible to roll some of the money from a 401k to an IRA even if you do not leave your current job? I’d like to do this because an IRA offers more investment choices as many have noted.
As far as I know, you cannot roll over your qualified plan balance while still currently employed… Unless has discovered a loop-hole.
John — I believe 403B plans are a little bit different, in that there isn’t a penalty for taking the money after leaving employment. 403B and 457 plans are both deferred compensation. If you roll them over to IRAs, they are “recharacterized” and you lose access to the money without penalty.
If you have a good emergency fund and don’t need cash to start a business, then a rollover is a good idea. But if you might need that chunk of cash, it’s one place you can get it without penalty, and without high interest rates.
I’ve transfered jobs last year and now my 2007 taxes are a little crazy due to the rollover. I remember doing it, but I didn’t document it sufficiently
Thanks for the article! I’ve had some money in my previous employer’s 401K since April 2005.
I still don’t know what to do with it. I’m buying a house soon and was considering taking the cash out until I read this. I’d heard there was a penalty but wasn’t sure how much it was.
My current employer has a 401k but they don’t match. Would an IRA be better for me?
If it is your first house and the loan is under your name, there may be an exception to the tax penalty for taking the money out of a 401k.
Must one sell their 401(k) positions in order to roll the funds over to a Roth IRA? In other words, do I have to convert everything to cash and then re-buy the stocks/bonds/mutual funds when the money’s in the new account?
I’m confused about one thing:
Let’s say I have $50,000 in my 401(k) and I quit my employer. How can I move that all into an IRA when the contribution limits of an IRA are $5,000?
Thanks!
@joe (39) – Contribution limits are $5k. If you do a rollover, you are not making a contribution; you are rolling it over. The $5k limit does not come into play when you do a rollover.
I rolled over about $55k when I left my employer in January.
Hey Joe-
There is no dollar limit to “rollover” amounts from a qualified employer plan to an IRA.
The limit is on contribution of new funds.
By the way… make sure your rollover is a “trustee-to-trustee” transfer… if the check comes to you and then you try and roll it back into an IRA, you’re going to get the mandatory withholding.
@James (#37)
Not necessarily. A 401(k) is a better choice than an IRA if you wish to contribute more than the IRA limit (for 2008, the limit is $5000/yr if under age 50, $6000/yr if 50 or older).
There is another issue which has to do with people who are putting money into non-deductible IRAs, planning to convert them to Roth IRAs in 2010. If you are in that category, you need to be careful before doing a 401k to IRA conversion. But I don’t know enough to offer an explanation, just thought it should be noted. Nickel has an article on the topic: http://www.fivecentnickel.com/2007/10/18/look-before-you-leap-roth-ira-conversions-in-2010/
What would you recommend for a person who has 401ks from previous jobs and wants to combine them (rollover?), but now has a job with an employer that doesn’t offer a 401k?
I’m in somewhat of a similar situation as ageekymom – I have several IRAs in different places, and a couple of retirement accounts (401 K plans) to roll over. Is now a good time to consolidate IRAs and retirement accounts to one company (I’m thinking of Vanguard) or should one wait for less volatile times or take a gradual approach and do this over several months? I look forward to hearing your perspectives. thanks!
nikki,
Volatile times is relevant. I recently moved money from Vanguard to Fidelity and it took almost a month. If the market makes one of its big two week moves upward during this period with your money in cash you could miss out on a 10% return (that’s right, historically all the big permanent moves upward have occurred over a two week period.) I’d do one at a time to spread your risk. I wouldn’t wait. I’d make very sure you know how long the transfer will take and that you are doing it in the best way. I believe I got some bad advice for my move so you may want to ask several advisors or better different departments.
Meles,
Thanks for the advice on moving the accounts over soon, but gradually. I was able to speak to my tax advisor who said the same about spreading the risk out over time since one can’t predict the market on any given day.
Was there anything @ Vanguard that you didn’t like that made you want to switch to Fidelity?
Is there any way to transfer my money from my current 401k to an IRA? My company was just bought out. The new company did away with the 401k match, moved the 401k from T.Rowe Price (20-30 investment options) to Mercer (6 options that perform poorly). Now we are being told that starting in 2009 we will have to start paying a management fee to participate in the 401k plan, not being told what the fee will actually be. Any ideas? Thanks.
I bet most regular GRS readers already saw this, but JD made a follow-up post with a chart:
https://axis-monolith.live/retirement-plan-rollover-chart/%3C/a%3E%3C/p%3E
My wife just left her job to raise our daughter and had been participating in her company 401k for just about a year, contributing 3% a week. We are not sure what to do with the little amount of money in her 401k.
If we roll it over to an IRA, is there a minimum deposit necessary and are there minimum contributions that need to made each year (without her income, not sure if we can swing this).
Would it be a possible to roll over her 401k into my 401k?
I have a 403B that has been sitting there since I left a job almost 5 years ago. I can still roll it into an IRA, right? Also, anyone have any recommendation on who to use for the rollover?
Depends on what you are looking for…Vanguard has the lowest expense ratio, which is why I went with them. If you want to be able to meet someone face to face, go for one of the others like Fidelity. But compare the expense ratios, adn look for no load funds to find the best deals.
Hello all! If you need help with rolling over or the transfer of your 401k/403b/457 or IRA, please feel free to let me know! Thanks!
Lonnie & CoffeeGirl, there are plans out there that you can go into that have ZERO fees. Fidelity has great commercials, but you pay for them!
mjhvball – This can be done, by way of a direct transfer. Please post a reply if you’d like more info.
ageekymom- yes, you can do this. I’d love to help you get it done. Please reply with a post and we’ll get in touch somehow.
I have a 401(k) plan now, but I plan to leave my company as soon as possible *unless* I can manage a promotion. My funds are arranged somewhat aggressively because I thought I was in it for the long haul, but if I likely have to rollover my 401(k) to an IRA in the near future, does that mean I should be planning for short-term gains instead?
I have a question for tax professionals out there. I contributed to a 401(k) during the 4 months I worked for one company in 2008. I quit in April and went to work for a company that does not have a 401(k). I contributed less than $1500 to the 401(k) while I worked for the first company. Now I want to invest more money into an IRA (I rolled over the 401(k) into an IRA).
My question is this: Can I deduct the additional amount I will put into the IRA on my 2008 taxes? Let’s say I put it another $3000. Can I deduct that amount in addition to the amount I put into the 401(k)?
Tax law says that there is a phase-out for IRA deduction if I was covered by a 401(k) plan at any time during this tax year. My AGI will be way over the phase-out amount. However, I was not employed the entire year and contributed less than $5000 into the 401(k). So, can I still deduct any additional amount or is the tax law simply unfair to the ones who quit the job early in the year? Heck, if I only worked one day in 2008 and contributed $1 to the 401(k), it would make no sense not to allow me to contribute to the IRA and be able to deduct that amount.
Any thoughts on this subject are welcome. Thank you.
Is it generally easy to find out how expensive a 401k is? Both my wife and I have 401k funds from previous jobs. The management fees seem like a good factor in deciding whether to leave them there or roll to an IRA.
Alex:
There are products out there that are available to you that do not have fees attached. In the market today, piece of mind is a good thing. In addition to the zero fees, you can find a product that will give you a bonus to get you going. I’d love to answer any questions you may have. Reply to the post and we’ll get in touch. Thanks!
So I am quitting my job to move back to my home state/city. I don’t have another full-time job lined up back home, except waitressing until I find something full-time.
If I leave my 401K as is, with this economy, I feel like by not contributing money to the account (which I would not be doing) my money will keep dwindling more than it already has. Currently I am vested about $5100 into my account and I am 26 years old. I have only been working 3 years.
Any advice on what I should do??
pghfan — it’s almost always best to roll from a 401(k) into an IRA. Just make sure you pick a (discount, probably online) broker that will handle your IRA without periodic fees, that offers the funds you want to invest in, and that you trust a bit. I don’t know what your situation will be, but in general you might as well maintain the flexibility of an IRA; that’s a decent amount of money and quite a few brokers will be happy to hold it for you without fees.
The problem with keeping the money in the 401(k) is that it’s essentially out of your control.
pgfan: if you’d like to explore your available options, please shoot me a note @ [email protected] There are a few IRA’s available now that do offer a bonus on top of your rolled over funds. Fees are always extremely important to realize. Please let me know if I can help! Thanks, Nick
Rollover Guy, you wrote:
“There are products out there that are available to you that do not have fees attached. In the market today, piece of mind is a good thing. In addition to the zero fees, you can find a product that will give you a bonus to get you going.”
This is completely untrue. I assume you are speaking of an annuity which have optional riders that provide a bonus. That rider cost money. The cost of the bonus is in addition to the base fees of the annuity.
Am I missing something?
Wm.Tanksley in #62 says:
The problem with keeping the money in the 401(k) is that it’s essentially out of your control.
I disagree. Beyond the inability to make further contributions, a 401(k) is still self-directed. Since leaving my job in April 2008, I still monitor the account and have rebalanced at the first of the year, to take advantage of the lower NAVs. Good move, because the values are on the way back up, and I stand to have a higher balance when the funds regain the previous NAVs.
If you’ve done your homework and made sound investment choices, why move the money–if the employer allows you to let it stay put–and be subjected to fees and high investment minimums?
@Shin I also have funds sitting in my past employer’s 401k account. It gets auto-rebalanced. My thinking has been the same as yours. Why move it?
My fear is that I don’t really know what the fees are for 401k accounts there versus for example TIAA-CREF at my new employer. I wonder if there’s a huge difference. I suppose it’s on me to find out.
Shin & Alex: You guys might want to investigate the fees associated with those 401k accounts, because you will likely find that they are very high, and they are very likely higher than what you would pay elsewhere, especially if you switched to ETFs.
Shin: when people say that you have little control over a 401k, what they mean is that your (former) employer has picked the very few funds that will be available to you, and that’s all you can choose from. You can’t choose from the many thousands of ETFs or traditional retail mutual funds that are available. In that sense, you have little control over your retirement money.
Now, if you don’t care about the fees, and you don’t care about the limited selection, then, sure, I guess there’s no real reason to move the money. For me, I care about the fees, and in my situations I always found the selection of funds to be sub-par. As such, I have never left money in a former employer’s 401k plan.
Yes, lack of choice with employers making less than wonderful choices because they don’t take the time to make wonderful choices.
As an investment professional I run into another problem about twice a year. A new client with an old 401(k) with a small employer who’s gone out of business. The employee then tries to move funds from this employer’s 401(k) only to discover they have to get that employer’s signature to get the funds released. The trouble is finding the prior employer and then pinning them down to sign the form. The longest it’s taken me to get that form signed is six months.
Imagine needing the money for one reason or another. Do you want to deal with having to find those folk to access your own money? That’s the more important control to me. Now there is basically no one between me an my money.
Good comments everyone. Another question: I hear this statement every once in a while but I’m not sure what to make of it — “If you move your funds you are locking in your losses.”
As long as I keep track of the total amount of contributions to see my personal ROI what does it matter where the funds are…
Alex, here’s what I think of that statement:
If you exit the market, you are locking in your losses. If you merely change your investments, the you aren’t really locking in your losses: you are trading one low investment for another low investment.
Put another way: I think it’s foolish to continue to own an investment just because you owned it in the past – that’s nothing but inertia. A person needs to own investments that are appropriate for his current situation, not for a situation from his past.
Jack and Daniel:
Under normal circumstances I might agree with you. However, my former employer is a major bank with its own investment services.
I have two stock funds (40%/40%) and a cash fund (20%). I did a fair amount of research when I selected the funds, and have not been disappointed. I’m just sorry that I couldn’t continue to contribute when the NAVs were way down. Since my contribution amount was modest ($50 a month) because I was only working part time, my contributions had what amounted to a 100% employer match. In fact, my balance is much higher than those of full-time employees who have been there three to five times longer than I was. Between employer matches on contributions and earnings, I have nearly a 100% ROI on my $4,500 contribution, and the account is not yet at its previous level. I know it’s not much, but since it ain’t broke, I have no plans to fix it.
I also have a Roth IRA with Vanguard, but the threshholds for non-institutional investing are pretty high. Also, I must pay $35.00 for each trade, and Vanguard doesn’t match my earnings, as does the bank. Between the two accounts, I have five diversified funds.
I will, however, take your words under advisement as they pertain to smaller employers. These things are good to know.
Alex:
Do you have any online access? You should be able to get info on each fund included in the plan. Call your plan administrator and ask to have that info sent to you.
Before you make a 401k rollover do not forget to consult with a financial officer or an investment companies to check your status and do get information whether your rollover would incur any tax or penalties.
I just give my company my 2 week notice. I need my 401k, but they told me that they do not allow me to cash it out for 1 year. Is that normal or legal. I relly need this money to survive.
The best thing to do is ask an IRA provider or two; I’ll bet you’ll find one quickly. You’re right to think of minimum deposit; also look for zero fees. You might start by looking at some online comparisons, such as consumersearch.com.
I don’t think you can combine 401(k)s from different people.
I left my job about a month and a half ago and don’t know what to do with my 401k. I have about 5000 and dont know if I should cash it out since it’s not much, I’m only 23, don’t understand IRA’s and my previous employer matched what I put in. I figured that if I get a 30% tax penalty at the end I still made money since I only invested about 1500. Would it be wiser to transfer the money to an IRA? I know that if the companies I invest in dont do good then I lose money and how things are I’m not sure how the companies are going to do. I figured it’s still going to be a few years before the economy gets better.
Hi Linalee. Since you’re only 23, the money has a long time to grow before you need it for retirement, so you absolutely should roll your 401k over to an IRA.
Yes, you would still net an increase if you were to take the penalty, but why take it? Leave it in a retirement account (move it to an IRA) and then reap even greater rewards when you retire. I wish someone had given me this advice when I was your age!
I quit a job and cashed in my company stock,is it a Ga.law that I can’t go back for a year?
I too was looking around to see what to do with my 401k. This site was helpful, but I also ordered a 401k rollover package from RolloverCenter.com The package was free and at first I thought it was too much information but I put my mind to it and got through it all. I am glad I did. I think the rollover process is too important for my retirement to scew it up. Hope this helps.
-Alan
I’m 28 years old. I’ve worked for multiple companies in the plants. I’m wanting to see how I would get my 401k from all the different companies I have worked for
I am rolling over from a previous employer to the new. They told me to put the plan name on it for the check and my name. will i be able to temporarily deposit that in my account before the 60day time frame as long as I send in the total before 60 days?
What is best for me, a 67 yr. old who is quitting job and going to company with NO benefits? I’m told I must put it somewhere approved..and not to “cash out”. I have no other retirement plan. What should I do?
Hi Rich,
The first step here is to call or email the company that handled your 401(k) account (for example, Fidelity) to retrieve your log-in information, or, if you don’t remember, call the HR department of your former company and ask them. They will help you. Once you have access to whatever account hosted the 401(k) you can see your balance and then plan next steps. Here’s a post that might help with that step. Let us know how it turns out! https://axis-monolith.live/what-to-do-with-an-old-401k/%3C/a%3E%3C/p%3E
I read the article titled – “I Quit My Job – What Should I Do With My 401k?” – to find out what I should do with my 401k. The article lists the options, but doesn’t give any criteria for selecting an option. Either change the title to “what are my options?” or provide a decision matrix. “if the current 401k has high expenses or poor select, then roll it into a Traditional IRA or your new employer’s 401k ” would be an example of advice.
It may just be my experience, but my employers generally had no retirement plan or very bad ones, I tend to do a 401k rollover into a Traditional IRA when I change jobs. If your new employer has a plan with low fees and good selection of investments, I’d roll the old one into the new one. You’ll get good investments and it’s one less account to keep track of.
Speaking of keeping track, if you put your 401k plans into Mint.com, you won’t lose track of them. You’ll seem them ever time you log in.