Got a new job? Congratulations. Now, what are you going to do with that old 401k?

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As you change jobs, you may face a significant decision: what to do with your 401k plan. A 401k is an employer-sponsored retirement savings plan, which comes with tax benefits and investment options. It is essential to consider some factors and take proactive steps to make an informed decision about your 401k. Here are some options:

Option 1: Leave Your 401k with Your Former Employer

Some employers may allow you to keep your 401k account with them after you leave the company. This option is known as “leaving your money in the plan.” It’s important to note that not all employers offer this option, and some may charge additional fees for account maintenance.

Pros: This option may be convenient if you like your current investments, want to keep the tax benefits, or if you are undecided about what to do with your savings.

Cons: You may not have access to investment advice or guidance from your former employer, and you may be limited to the investment options that they offer.

Option 2: Roll Over Your 401k into Another Employer’s retirement plan

If your new employer offers a 401k plan, you may be able to transfer your savings from your former employer into the new plan. This option is known as a “rollover.”

Pros: It may be relatively straightforward to combine your savings, and you’ll continue to enjoy the tax-deferred benefits of a 401k plan.

Cons: You may need to check if your new employer’s plan accepts rollovers, and you may have to pay additional fees if the investment options are more expensive than your previous employer’s plan.

Option 3: Roll Over Your 401k into an IRA

If you don’t have a new employer’s retirement plan or would like more investment options, you may consider rolling your 401k savings into an individual retirement account (IRA).

Pros: You may have access to a broader range of investments than you would with a 401k plan. You’ll enjoy tax benefits similar to a 401k plan, and you can seek investment advice from a financial professional.

Cons: If you choose to invest in mutual funds, you may need to pay fees for the IRA account and the mutual fund expenses. You may also face taxes or penalties if you don’t complete the rollover correctly.

Option 4: Cash Out Your 401k

While you have the option to cash out your 401k savings when you leave your job, it’s usually not recommended. You’ll face a 10% early withdrawal penalty if you’re under age 59 1/2, and you’ll owe income taxes on the withdrawal amount. You’ll also miss out on the potential long-term growth of your retirement savings.

In conclusion, you have several options when it comes to your 401k plan as you change jobs. It’s important to weigh the pros and cons of each option carefully, and consult with a financial advisor if you need guidance. By making a well-informed decision, you’ll be on your way to continue building your retirement savings.