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401(K) Options When Changing Jobs

Moving to a new job or career is an exciting time in any professional’s life. Like choosing your new healthcare plan, you’ll also have to decide what to do with your old 401(k) plan when you change jobs. Thankfully there are several excellent options available to you during this time of transition.

Option One: Withdraw the Funds in a Lump Sum

One of the many available 401(k) options when changing jobs is to withdraw all of the money from your current retirement fund in a lump sum. You can do what you wish with the money, because it’s yours. You could invest in a large purchase, such as buying a new home, pay off some old debt, like those looming student loans, or you could invest the funds elsewhere and keep supporting your financial future.

Here’s how it works:

  • You’ll ask the old 401(k) plan administrator to write you a check for the full amount.
  • You’ll pay federal and state income tax on the money you withdraw as applicable, unless there are after-tax contributions you made throughout the year.
  • With Roth contributions, you will not have to pay federal income tax, since the funds have already been taxed, (a 10% Penalty if distributed before age 59 ½, may or may not apply).

Option Two: Leave the Funds in the Account

A second option available is to leave the funds in the current account and let them continue earning interest. While you won’t be getting the employer match you’re used to, you can still leave the funds in the account in some cases. Unfortunately, if the amount is less than $5,000, most 401(k) administrators will force you to withdraw the funds or roll the balance into another type of account.

There are a couple of reasons you may want to leave the funds in the current 401(k) account temporarily, including the following:

  • You need a little time to decide what you want to do with the investment funds.
  • You like the investment alternatives the plan has to offer.
  • Your new employer offers a 401(k) plan, but has a temporary waiting period.

Option Three: Roll the Funds into a Self-Directed IRA

Unlike the previous two options, rolling your 401(k) plan into a Self-Directed IRA is an option that offers the potential of growing your retirement funds exponentially. A Self-Directed IRA is an investment option that allows you to take full control of your investment. Whether you want to invest in real estate, a private entity, or precious metals, a Self-Directed IRA allows you to take control and gives you the opportunity to grow your money with the investment option you are most comfortable with.

Here’s how a self-directed IRA works:

  • You roll over your 401(k) funds into a new Self-Directed IRA account.
  • You choose the alternative investment (s) you prefer.
  • The profits you earn from your Self-Directed IRA investments can be tax deferred or even tax free when using a Roth Self-Directed IRA.
  • While the annual contribution limit is set by the IRS, there is no limit on the growth you can earn in the account.

Which Option is Right for You?

Whether you’re looking to retire in a few short years, or you’re at the beginning of your working years, planning for retirement is in everyone’s best interest. Whether you decide to invest in a new home or a new company is a very personal decision. For assistance deciding what to do with your 401(k), contact the professionals at iPlanGroup and let us help you plan for your financial future.

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