So, you’ve gotten a new job. While the transition period can be an exciting one, there are several loose ends you’ll need to tie up before you leave. One question you may be asking yourself is ‘what do I do about my 401(k)?’ You have a couple of options when it comes to this decision.
LEAVE IT ALONE
You can leave the money in the 401(k) plan it’s in now. Just be aware that there may changes down the line that may make it more difficult to access the money in the future. So keep track of what is happening with this account, as well as the company, so you always know where your money is.
ROLL IT OVER
You can also move your savings when you leave a job. There are three main types of rollovers, which include:> 401(k) to IRA
> 401(k) to Roth IRA
> Current 401(k) to new employer's 401(k)
WHAT IS AN IRA?
An IRA is an Individual Retirement Account which belongs solely to you and is not tied to any employer. These accounts usually offer more investment opportunities. There are two types of IRAs, these include Traditional and Roth.
A Traditional IRA is very much like 401(k) where your contributions are tax deferred until it's time to withdraw. There also may be lower fees associated with this type of account.
If you decide to roll your funds into a Roth, you will need to pay taxes on the amount you already have invested when you roll it. When you start contributing to this account, the money you owe on taxes will be removed BEFORE it hits your account. This means, once you retire, you won't have to pay taxes when you withdraw funds.
WHAT DO I DO?
Before moving your money, you should establish the new account which you will be using. Then, you will need to notify your current account holder that you will be changing accounts. This will require some paperwork on your end. Next, you will need to fill out more paperwork with your new account as you prepare to make the move. A check will then be sent from your old account to your new account.
Whatever you decide to do, make sure you are diligent and follow through. If you decide to leave your money, keep track of it. If you choose to move it, make sure your money goes where it's supposed to within the required 60 day period. If the money fails to be deposited into a new account during that time, you may face penalties.