If you’ve recently gotten laid off, or left your job for another reason, what should you do with your old 401(k) funds? Cash out, move to a new employer plan, roll them over to an IRA? Adam Bergman explains your options.
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About IRA Financial:

IRA Financial Group was founded by Adam Bergman, a former tax and ERISA attorney who worked at some of the largest law firms. During his years of practice, he noticed that many of his clients were not even aware that they can use an IRA or 401(k) plan to make alternative asset investments, such as real estate. He created IRA Financial to help educate retirement account holders about the benefits of self-directed retirement plan solutions.

IRA Financial Group is a retirement account facilitator, document filing, and do-it yourself document service, not a law firm. IRA Financial Group does not provide legal services. No attorney-client relationship exists between Client and IRA Financial Group, its management, salespersons or IFG’s in-house legal counsel. IRA Financial Group provides IRA retirement facilitation service and CANNOT provide Client with legal, investment, or financial advice. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

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Losing your job can be a difficult and stressful time, and the impact can be particularly significant if you have a 401(k) retirement plan through your former employer. But what should you do with that plan now that you’ve been laid off? Here, we’ll explore some of the key considerations you should keep in mind as you make this important decision.

First and foremost, it’s important to understand the options available to you. Generally, you have four potential paths forward:

1. Leave the funds in your former employer’s plan: Depending on your particular 401(k) plan, you may have the option to simply leave your funds where they are, even if you are no longer employed with that company. If the plan has good investment options and low fees, this can be a reasonable choice.

2. Roll the funds into a new employer’s plan: If you have a new job with a company that offers its own 401(k) plan, you may be able to roll your old plan’s funds into the new plan. This consolidates your retirement savings and can simplify your financial management.

3. Roll the funds into an IRA: If you don’t have a new employer’s plan or prefer to manage your own investments, you can roll your old 401(k) funds into an individual retirement account (IRA). This gives you more control over the investments and fees, but may require more active management on your part.

4. Take a cash distribution: Finally, in some cases you may be able to simply withdraw the funds as a cash distribution. However, this option should be a last resort, as it will typically trigger taxes and penalties that can significantly reduce your retirement savings.

As you evaluate these options, keep in mind some important factors:

– Taxes: Depending on how you handle your 401(k), you may owe taxes on the funds you withdraw. This can reduce the funds you have available for retirement.

– Penalties: If you are not yet 59 1/2 years old, withdrawing funds from a 401(k) may trigger an early withdrawal penalty of 10%. This can be a significant cost and should be avoided if possible.

– Investment fees and options: Different retirement plans and investment accounts have varying investment options and fees. Consider the costs associated with each option as you evaluate which one is best for you.

– Your overall retirement plan: Finally, remember that your 401(k) is just one part of your overall retirement plan. As you evaluate what to do with those funds, consider how they fit into your larger financial picture, including any other retirement savings you may have and your long-term financial goals.

Ultimately, the decision of what to do with your 401(k) after a layoff will depend on a variety of factors specific to your situation. However, by carefully evaluating your options and weighing the pros and cons of each, you can make a confident decision that helps you continue to build towards a secure financial future.