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Today’s tip will cover “What do you do with your 401k when you leave a company?”

When you leave a job for another company or when you transition into retirement, you have several options to consider for your 401k.  You might be able to leave your account where it is.  It can also be rolled over into a Traditional IRA or Roth IRA, rolled over to your new employer’s 401K if the plan accepts rollovers or distributed as a lump sum cash payment but be aware of the tax consequences.

• Leave your old 401K with your former Employer. An old 401k can be left with the original plan sponsor if your account balance is over their account balance minimum which can be $5000 or more depending on the company. If it is under $1000 the company may issue you a check.
• Roll over your old 401K to a Tradition IRA or Roth IRA. You can open an account on your own through a financial institution.  One of the biggest benefits of rolling your old 401k into an IRA or Roth IRA is the ability to pick your investment options.  You have access to all different types of investments and are not limited to what is available only in the company selection.
• Roll your old 401k to your New Employer’s 401K. You should check with your new employer to see if the plan allows for rollovers.  Some employers have enrollment periods after a certain amount of time at the new company.  If you are eligible to roll the old 401k plan into the new one, I would evaluate your investment options in your new plan.
• Distribute as a Lump Sum. If you decided to cash out your 401k plan, there are tax consequences to consider. Also, if you are under the age 59.5 then you could be subject to the 10% early withdrawal penalty.

In addition to all the options I just went over with you.  You can also take distributions which has its own set of rules and guidelines to follow.  As you can see, there are several options to consider. There are a lot of facts and circumstances to factor in and this is something that needs to be evaluated case by case.  For your specific tax related questions consult with your tax advisor.

If you like learning about finance I have a great video that will help you accomplish more with your money, without giving up latte’s or any of that nonsense. You can get the video at savvyupnow.com/money101 and I will also provide the link in the description of this video.

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Catherine Magaña is a CFP® or CERTIFIED FINANCIAL PLANNER™ and Managing Partner at Savvy Women Wealth Management in Carlsbad California.

We help women invest wisely and create custom financial plans for their way of living so they can enjoy a fulfilling retirement with peace of mind…

…without giving up their lifestyle.

htts://savvyup.com   |   P: 760.692.5700

Savvy Women Wealth Management is an SEC-Registered Investment Adviser.