Options for Your 401K When You Leave a Job

Kimberly Watson, Editor in Chief
May 24, 2012 /

The accumulated funds in a 401K account could be a primary influence for a worker planning retirement. However, a wrong decision could prove costly, but you have a relatively few options when it comes to evaluating your options.

Adding to the sometimes traumatic experience of leaving a job is the decision to make regarding your valuable asset, which can make a large influence in your life. There are realistically three alternatives; keep your 401K balance where it is; transfer it to an IRA, or cash it out. However, there are various considerations to take into account.

Tax complications could arise when transferring retirement money to different sources. Should you mistakenly let the money remain static for sixty days, or inadvertently move it from an IRA to a Roth IRA, penalties and taxes could be, incurred!

Starting later this year, the Department of Labor will require the sponsors of 401K plans to disclose fees to participants. Until that takes place, recommendations are that employers are consulted regarding fees and expenses relating to a plan. These expenses are generally claimed regarding the various services associated with the operating and administration of a 401K plan.

Within a 401K plan, a worker is limited to what a company offers regarding investments, with most participants able to distribute their money among 10 to 15 selected options. Roth IRA plans and Rollover IRA options provide more flexibility regarding investment choices and supported by financial advice.

You will be unable to obtain a stable fund, other than an employer sponsored, plan, such as the 401K. If this investment could be considered crucial to your financial position, it is recommended that you remain with the plan, with the provision that the fees are reasonable. Should you require a greater choice, then a roll-over to an IRA could meet your criterion.

Age and taxes are influencing factors regarding, keeping your money in the 401K plan of your employer. However, any person between 55 and 59.5 years of age would be well advised to leave their 401K money with their employer. If you are 55 years old, you are able to withdraw funds from your 401K account, without incurring a 10% penalty.

According to various experts, keeping your 401K money in a form of retirement account is essential. The compounding that occurs relative to these accounts is a critical factor in achieving retirement financial ambitions.


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