When Should You Transfer an Old 401K to Your New Job
Changing jobs can bring positive changes, which often include higher pay and an improved benefits package. It can also deliver a realm of uncertainty about what to do with an existing 401K at your previous employer. There are a number of options which include, taking the old retirement plan to your new job. The following will help you navigate this important decision.
Leave it where it is: Most employers permit leaving a 401K or retirement plan with the company, provided the balance meets the minimum required. You must repay any outstanding loans within 60 days of departure, regardless of whether you leave or transfer the account.
Move it to the new employer. If your new employer offers a 401K or retirement plan, you can typically move funds from the old account into the new one without any taxes or penalties. After the transfer, you will select investment options for the new employer’s plan.
- Fees and the administrative costs.
- Investment fund options.
- Existing company stock in your previous plan and any restrictions resulting from the transfer.
- Moving funds to the new employer could qualify you for a 401K loan in the future, which is not an option while funds remain with your previous employer.
- Mandatory distributions begin at age 70 ½ on all traditional accounts, unless you are currently working for the employer.
Moving your 401K from your previous employer is an irreversible transaction. Except under certain exclusions, you must leave funds in the account until reaching 59 ½, to avoid penalties. Taxation occurs when you withdraw funds. Whether you choose to manage multiple accounts or keep your retirement funds in one 401K, the tax benefits make it an excellent avenue for retirement savings.