If you’ve recently left your job, you may be wondering what you should do with the funds in your 401(k). You have four options – cash it out, keep your 401(k) with your former employer, rollover your 401(k) into your new employer’s plan, or rollover your 401(k) into an IRA.
Explore the benefits and considerations of each option and consider talking with a financial professional to determine which might work best for you.
Benefits:
✅ Immediate access to your money
Considerations:
❌ Money not available for future retirement needs
❌ May be subject to 20% federal income tax rate
❌ May be subject to 10% federal tax for early withdrawals before age 59½
❌ May be subject to state and local taxes
Benefits:
✅ Retirement investment continues to grow
✅ Tax-deferred until withdrawal
Considerations:
❌ Cannot make additional contributions
❌ Subject to different rules than your new employer’s retirement plan
❌ Investment options limited by former employer
❌ Tax penalty for early withdrawals before age 59½
Benefits:
✅ Can continue to make new contributions
✅ Ability to manage rolled-over money and new contributions collectively
✅ Tax-deferred until withdrawal
Considerations:
❌ Investment options limited by new employer
❌ Tax penalty for early withdrawals before age 59½
Benefits:
✅ Not restricted by your employer’s retirement plan
✅ Tax-deferred until withdrawal
✅ Direct rollovers from 401(k) to IRA will not incur federal income tax
Considerations:
❌ Account fees may be higher than employer-sponsored plan
❌ Tax penalty for early withdrawals before age 59½
❌ Indirect rollovers may incur 20% federal income tax
Additional resources:
Get more details on 401(k) rollovers.
Learn more about the benefits of an IRA.