If each of the above scenarios, you’ll need to make a decision about where your 401(k) goes next. The good news? You have several options, and understanding each one can help you make the best choice for your financial future.
Option 1: Roll Over to an IRA
One of the most popular strategies is rolling your 401(k) into an Individual Retirement Account (IRA). Why do so many people choose this option?
- More control: You’re no longer limited to the investment lineup of your former employer’s plan.
- Greater flexibility: You can align your portfolio with your specific goals and risk tolerance.
- Personalized advice: If you work with a fiduciary advisor, you can receive guidance that’s tailored to your unique situation.
- Potentially lower fees than many 401(k) plans.
Rolling over to an IRA can be especially beneficial if you’re nearing retirement, looking for more investment options, or want a more hands-on approach to managing your money.
Option 2: Move It to Your New Employer’s 401(k)
If you’ve started a new job and your new company offers a 401(k) plan, you may be able to move your old 401(k) into the new plan. This can be a smart move if:
- You want to keep all your retirement savings in one place
- The new plan offers strong investment options and low fees
- You’re looking to simplify your financial picture
Before making the move, be sure to compare plan details, including fees, fund choices, and support options.
Option 3: Cash Out
Cashing out your 401(k) might sound appealing, especially during a big life change, but it often comes with serious downsides:
- Taxes: You’ll owe income tax on the entire amount.
- Penalties: If you’re under age 59½, you could face a 10% early withdrawal penalty.
- Loss of long-term growth: You’re removing money that’s meant to grow for retirement.
In most cases, this is only advisable in true financial emergencies. Even then, it’s worth reviewing all other options first.
Timing Matters—But So Does Advice
In most job transitions, there may be a short period of time before the retirement plan officially terminates, and you can take action with your funds (this is especially the case for company buyouts). But that doesn’t mean you have to wait to make a plan.
- This is a great moment to take a step back and evaluate:
- What does your ideal retirement look like?
- How much flexibility do you want in managing your money?
- Are there better investment strategies that align with your current life stage?
And most importantly, do you have someone in your corner to help you confidently make this decision?
Here to HelpAs a fiduciary financial advisors, our role is to guide, not pressure. We are here to walk through your options, answer your questions, and help you make the decision that’s best for you.
If you’re facing a 401(k) decision due to a job transition, company buyout, or plan termination, let’s talk. A quick, no-cost 20-minute conversation can help you move forward with clarity.
Schedule an AppointmentYour 401(k) is too important to leave to guesswork. Let’s make a plan that works for your future.
