Managing your 401K after leaving a job
Congratulate yourself if you’ve contributed to your company’s 401K plan, maybe with your employer matching every dollar you saved. You’re on track to a more secure retirement, especially if your 401K investments grow in value and maintenance fees on the account are minimal.
But if you change jobs, you’re apt to not be told of all your options to keep that 401K chugging along at maximum efficiency, finds a report from the Government Accountability Office.
“There are four basic options,” explains GAO researcher Charles Jeszeck. “You can take a distribution [meaning cash out] out of your savings, leave the funds in the 401k, roll it over into the 401K at your new employer or rollover the funds to an IRA.” (The term “rollover” is financial jargon for transferring money from one account to another.)
Those with a small 401K, however, may have just three options, since employers are allowed to force out accounts under $5,000.
Given the importance of your 401k to your future security, workers should choose the best option with care, notes Jeszeck.
Since the maintenance fees charged by different 401K plan and IRA plan providers differ, that’s a factor to consider. So, too, is the range of investments that a plan offers.
For distributions, the plan will hold back funds for taxes and penalties for withdrawing before retirement.
Unfortunately, says Jeszeck, GAO researchers find that workers are usually simply told to rollover into an IRA – even by representatives of the new 401k plan.
One reason that option is stressed is because “there are a lot of forms to transfer to a new 401k,” says Jesceck. The GAO is urging changes to ease transfers and to make the range of options better known.
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