Once upon a time, being employed in the same career our entire work lives was standard. However, the lifetime employment our grandparents experienced no longer exists. Whether you wanted to pursue new opportunities, were downsized, fired or just couldn’t face the prospect of going to work anymore, the odds are that at some point in your life, you will leave your current employer.
And when that happens, you have a few options regarding the assets in your company's retirement plan. For example, 401(k), 403b, 457 or TSP. These options are:
1. Leave your assets in the old employer’s 401k retirement plan
Many 401k plan administrators charge record keeping and other fees to manage your account, regardless of whether you are still with the company. These fees can take a significant bite out of your future net worth, especially if you have accounts maintained at several different employers.
2. Complete a 401k rollover to the new employer’s 401k plan
Moving the money from your current employer’s plan to your new employer’s 401(k) plan is easy because it keeps your assets consolidated but at the same time, you will be subject to the choices provided by your new employer. If you are unsatisfied with the choices available to you, completing a 401k rollover to an IRA may be a better option.
3. Complete a 401k rollover and move the assets to an Individual Retirement Account (IRA)
Completing a 401k rollover is almost always the best choice for those interested in providing for a comfortable retirement because it allows the investor’s capital to continue compounding tax-deferred while providing maximum control over asset allocation (i.e., you aren’t limited to the investments offered by the 401k plan provider.)
4. Cash out the proceeds, paying taxes and the 10% penalty fee
It's almost always a huge mistake to cash out your 401k or retirement account. The tragedy is far greater than the taxes and penalty fee. The greater financial loss comes from the decades of tax-deferred compounding that your capital could have earned had you chosen to initiate a 401k rollover.
If you left money in an old 401k, 403b, TSP or 457 let's get together to discuss the best course of action.