If you recently got a new job, you may be wondering what you should do with your 401(K) (or another employer plan) from your previous employer.
The good news is that you have options.
The 3 Main Options To Choose From When Rolling Over Your 401(K):
Option 1: Leave the 401(K) with your previous employer
When you leave, you may have the choice to leave your 401(K) at your previous employer. (There can be exceptions to this, so please be sure you are reading the paperwork they send you after you leave.)
Option 2: Roll the 401(K) from your previous employer into your new employers 401(K) plan.
Your new employer’s retirement plan may allow you to roll your 401(K) from your previous employer into your new plan. Every plan is different and has different rules, so this is something you will have to ask to see if they allow it. If there is a waiting period until you are able to contribute to the 401(K) with your new employer, you will have to wait until then to roll the old employer plan over.
Option 3: Open an IRA and roll over your 401(K) into that account.
You can open an IRA and roll your 401(K) from your previous employer into the new IRA. When you do a direct roll over, you will not be subject to taxes or penalities. You are simply taking the pre-tax 401(K) and rolling it over to a pre-tax (Traditional) IRA. (Or if your 401(K) is Roth, you will roll it into a Roth IRA.)
Side note: There is an option 4 and that is to withdraw the funds from your previous employer’s 401(K) plan. This is NOT a great idea as you will be hit with taxes and penalties on that money in the year that you take the distribution. Please be sure you talk with a Financial Planner before making a decision.
What option is the best option?
Generally speaking, you will have more control over your account and your investment options when you roll your previous employer plan over to an IRA. This is because you get to choose what Financial Planner you work with and what investment options you have access to. Whereas when you no longer work at that previous employer, your interaction with them is likely limited.
Because everyone’s situation is different, we highly recommend that you have a conversation with a Financial Planner in order to make the best decision for you.
We would be happy to discuss this with you and answer any questions you may have. You can schedule a meeting with one of us here:
Whitaker-Myers Wealth Managers, LTD is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.