When you change jobs, you need to decide what to do with the money in your 401(k) plan. Should you leave it where it is, or take it with you? Should you roll the money over into an IRA or into your new employer's retirement plan?
There are advantages and disadvantages to rolling over your assets into an IRA. Campos Financial Group can help you determine which option may be best for you. If you see the value in working with a fiduciary financial advisor exclusively focused on helping you reach your goals, or if you have questions, contact us for a free consultation here.
Option 1: Roll over your old 401(k)/403(b)/TSP into an IRA with Campos Financial Group
- Your investments will remain tax-deferred until you withdraw them.
- You will have access to a wide range of investments, including stocks, bonds, mutual funds, ETFs, and more.
- You may be able to take penalty-free withdrawals prior to age 59½ in special circumstances (such as higher education expenses, health insurance premiums or a first-time home purchase).
- You will not be able to take a loan against your account.
- Any outstanding plan loan balances would need to be repaid prior to rolling over or you may incur income taxes and potentially a 10% tax penalty.
- The level of protection from creditors for assets in an IRA is lower than in a plan.
- If you hold appreciated employer stock in your former employer's plan account, there may be tax consequences. You should consult with a tax advisor.
Option 2: Leave the assets in your former employer’s plan
- Your investments will remain tax-deferred until you withdraw them.
- Your investment choices would be limited to those in the plan.
- Your former employer may pass certain plan administration or record-keeping fees through to you.
- Even though you would still participate in the plan, you would not be able to contribute any new funds.
- Managing your investments among multiple accounts can be a lot of work.
- You may not have to take any action or complete additional paperwork.
- You may be able to take penalty-free withdrawals if you left your old employer between age 55 and 59.
- Your retirement plan balances may be protected from creditors and legal judgements under federal law.
- You would still have access to investor education, guidance and planning provided to plan participants.
Option 3: Roll over the assets into a new employer’s plan
- Your investments will remain tax-deferred until you withdraw them.
- Your investment choices would be limited to those in the plan.
- You may be able to take loans against your account.
- You may be able to take penalty-free withdrawals if you leave your new employer between age 55 and 59.
- Your retirement plan balances may be protected from creditors and legal judgements under federal law.
- Your new employer may pass certain plan administration or record-keeping fees through to you.
- If you hold appreciated employer stock in your former employer's plan account, there may be tax consequences. You should consult with a tax advisor.
Option 4: Take a cash distribution (least recommended)
- Your money (after any taxes and applicable penalties) will be immediately available to you.
- Your retirement savings will be depleted.
- The amount that you cash out will be subject to mandatory 20% withholding for federal taxes if under age 59½.
- Your distribution will be subject to applicable federal, state and local taxes.
- You may be subject to a 10% penalty if you are under age 59½.