Between high contribution limits, tax advantages, and potential employer matching, a 401(k) can be a homerun for your retirement savings. But if you've moved on from your 401(k) employer or are planning a transition soon, do you feel prepared to handle your retirement plan? Consider these options for managing your 401(k) savings after you leave your employer:
Logistically, this is your easiest option. Unfortunately, some employers don't offer this once you've left. It's best to check with your HR department to understand what's available. Also, you can no longer contribute to this account anymore.
Pro: No action needed on your part
Con: Not allowed by all employers
If your new employer offers a 401(k) plan, you can likely rollover your existing plan. This will allow you to continue taking advantage of 401(k) benefits like employer matching and high-contribution limits. However, you will be limited in your investment options based on your new employer's plan.
Pro: Maintain your tax-advantaged retirement account
Con: Limited by your new employer's investment options
If your current employer doesn't offer a 401(k), you could choose to roll your savings into an individual retirement savings (IRA) account. An IRA offers more flexibility and choice with your investments, but does have a lower yearly contribution limit than a 401(k).
Pro: Rollover to IRA Gain more control over your investments
Con: No employer matching and lower contribution limits
If you need extra cash today to cover expenses, you can choose to withdraw funds from your 401(k). Keep in mind, you will pay taxes on your contributions, plus a penalty for early withdrawal. While this might not be financially advantageous, it's still an option if you need cash immediately.
Pro: Get cash instantly
Con: Will likely pay penalties and/or taxes and you will be killing your compound interest.
Navigating your 401(k) is just the tip of the iceberg in retirement planning—there's a whole world of strategies waiting to empower your future preparations. Just know we are here to help you with all aspects of your financial landscape.
We have helped hundreds of clients with their old 401(k) and help find the right strategy for them. If you need help with this or want to discuss options, let's talk.
All the best,
Your Wela Financial Advisory Team
Brent Forrest & Associates, LLC. dba Wela Financial Advisory (Wela) is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. We used the help of Snappy Kraken to produce this content.
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