When you change jobs, the to-do list gets long fast. New benefits. New commute. New passwords. An old 401(k) can be easy to leave sitting where it is, and a lot of people do.
That may be fine. It may not be. Not every old plan needs to move. But leaving an account alone is still a decision, whether you meant to make one or not.
What usually sits on the table
Most people have four general options when they leave a workplace plan:
- Leave it with the former employer, if the plan allows
- Roll it into a new employer’s 401(k), if that plan accepts rollovers
- Move it to an IRA
- Cash it out, which may trigger income taxes and, for those under age 59½, a possible 10% early withdrawal penalty
Each option has potential advantages and drawbacks. Fees, investment choices, available services, Roth conversion flexibility, creditor protections, and the number of accounts you want to track can all differ from one option to the next. The details of your specific plan matter.
A question we like to start with
Instead of simply asking “Should I roll it?”, it can help to ask: What are we trying to accomplish, and what might we give up?
Consolidating accounts may simplify recordkeeping. A new employer’s plan may offer a narrower investment menu, or it may have lower costs. An IRA may provide more investment and planning flexibility for some households, but it may also come with different rules and costs. Leaving an account where it is may be simple today, yet it may be harder to keep track of over time if you end up with several.
We believe there is rarely one right answer for everyone.
Fall is when many people settle into a new role, or finally open the paperwork from the last one. If you have an old 401(k), or two, it may be worth reviewing your options before year-end.
If you’d like a second set of eyes, reach out to our team. We can walk through the tradeoffs for your situation and coordinate with your tax professional on tax questions.
References
- Internal Revenue Code §72(t) (additional tax on early distributions)
- IRS Topic No. 558, “Additional Tax on Early Distributions from Retirement Plans Other Than IRAs”
- IRS, “Rollovers of Retirement Plan and IRA Distributions”
- FINRA, “The IRA Rollover: 10 Tips to Making a Sound Decision”
This article is for general educational purposes only and is not personalized investment, tax, or legal advice. Strategic Financial Group does not provide tax or legal advice. Consult your own qualified professionals regarding your specific situation. Investing involves risk, including possible loss of principal. Rollovers and account transfers may have tax consequences, and plan-specific rules apply.