Changing jobs is inevitable at some point in a person’s life. There are many reasons this happens, but it is important to be prepared to transfer your 401(k) so that you aren’t losing money. It’s crucial that a person remembers to do this to ensure their financial security. Fortunately, there are a couple options to choose from when you begin the 401(k) transfer process.
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Options for 401(k) Transfer
The most convenient option that an individual can choose is keeping the same account that you had with your previous employer. This is the easiest option, especially if you’re happy with the investment options. However, there are some things to consider before choosing this option. The first thing to think about is how much money you have in the account. If you have $5,000 or less, there is a chance that you will be required to transfer the money out. Another thing to consider is the fees that you are paying for your current account. Although having a 401(k) is important, there are fees that need to be paid so it is key to know how much you are paying before deciding to keep the same account.
Benefits of New Account Transfers
Another option is to transfer the money into a new account. The new account may have lower fees or better support your financial goals. If your new employer offers more diverse stock options, then this can be a better option. Whatever the reason, having a new account can make it much easier to track how much money you have in the account because it is all in one place.
Something that you can do with this option is direct rollovers into an IRA. A direct rollover is when you transfer money from your old account into the new plan without dealing with taxes or penalties. A direct rollover into an IRA gives you more control of your assets and there are usually lower fees. There is another option which is called an indirect rollover. Indirect rollovers are when you withdraw money from your old account and give it to the IRA provider yourself. However, a direct rollover is much easier.
Cash Out Option
Another option to consider is cashing out your old account. This provides cash instantly; however, you should expect local or federal taxes if you do this. The reason behind this is because the withdrawn money is considered income. Something to consider before you do this is that there is a chance you will lose money because you didn’t allow your investments to grow. If you decide to withdraw and are between 55-59.5 years old, you will pay a 10% early withdrawal fee on top of taxes.
Making a Decision
Considering which 401(k) transfer option can be complicated and it’s important to have people to go to with any questions you may have. At California Pensions, it is our goal to give clients the best options for their organization. We help simplify the retirement planning process, and you can rest assured that you are getting the plan that fits best for your employees. Contact us today to get started.
