Changing Jobs

When it comes to retirement, things are quite different as that of the times of our parents and grandparents. It was easier staying in the same company at that time while contributing towards the same retirement plan till date. These days it’s not easy to stick to one job with the constant pay scale. You need to move forward in order to grow and enhance your financial growth also.  So, you can change job whenever you feel like changing it. It’s only you who has full responsibility of taking a decision about using your employer saving plan.

Here are some options that you can choose for the saving plan that will give you the opportunity to balance as well as grow at the same time. We at EWS Life have shortlisted a few options with their pros and cons so that you can make an informed decision. You may call it 401K transfer rules that will help you get the best advice for your employer plan.

• Keep your money in your former employer’s 401 (k) plans

The employer plans are also available to you after you leave the job. You can have the option to keep on investing money within the same plan in your former employer’s plan. It’s up to you whether you want to stay with your present investment plan or you want to move to any other investment plan. If you choose to remain in the former plan, you will have the benefits that may not find in any other plan. You can have withdrawal without any penalty even if you decide to leave the job at the age of 55 to 59 years.

What to do with 401K when leaving a job?

When you leave a job, you can have several options to choose for your saving plan. It would be a smart choice to leave your money into your previous plan and keep contributing to it. This choice has benefits of penalty-free withdrawal but at the same time, you will be limited to the investment contributions also.

What happens to your 401K when you quit?

When you quit your job, your 401K will remain as it if you haven’t withdrawn it yet. You can choose to continue contributing to the plan. And if you choose to withdraw, most of the amount will be depreciated in taxes and penalty.

You have one more benefit of leaving your money in the former employer plan. You will be able to take a loan against your employer-sponsored plan if needed. But this depends on the present situation of your account. You can be offered unlimited protection of general plan assets under federal law whereas IRA assets are secured for bankruptcy only. If you are presently working at the age of 70 or above, you should take Required Minimum Distributions (RMDs). And if you are under your current employer plan, you don’t need to take RMDs.

Leaving your money in the former employer plan may be the easiest way to save your money. But it will leave you with limited choices for investment plans. As you are bound by the rules of your old employer plan, you won’t be able to enrol in new employer plan even if you want to. You will have two investments to work on which will become more complicated with times.

• Roll your money into your new employer’s 401 (k) plan

The second option for you is to enrol yourself in the new employer plan. This will ease you with one saving plan without much complication. You can have the option to transfer your former savings into your new employer savings and manage all your savings at one place only. You can contribute more to your new plan afterward. Be sure to read all your rules and investment options as employer plans offer a limited amount of investment options with various rules that you require to follow.

Should you rollover your 401Kto new employer?

Yes, you can rollover your 401K to new employer plan and start contributing to your savings. But make sure that new employer plan is much better than your former employer plan.

• Move your money into an Individual Retirement Account (IRA)

If you roll over your money into an Individual Retirement Account (IRA), it offers you with a lot of tax benefits that an employer plan also provides. But in case of IRA, you have limited options for the contribution than in the employer plan. So, you may not be free to contribute as much as you want. It would be a good choice to choose new employer plan instead of IRA. The benefit of choosing an IRA is to have wider investment options to choose from as well as it will keep on rolling over and balancing your IRA account even if you move to a new job. If you are going to roll over stock into an IRA, the taxes on stock appreciation will be same as on ordinary income than taxes at the lower capital gain rates.

• Cash out your old account

Most of the people withdraw their money as soon as they get a chance to. But it should not be done so fast. We all want our cash in our hands without any delay as we have worked hard to earn this amount. If we think practically, it would not be a profitable deal but a loss of thousands. If that money is withdrawn before a certain age let’s say before the age of 59 or above, you will have to owe a penalty of 10%. This leads to 10% less amount of the total amount of your retirement saving plan.

So, withdrawing 401K after leaving the job is not so smart move if you are looking to save money on taxes and penalty.

Never cash out your money from your employer saving unless you are in great need of it or you are in serious financial crisis. It will deduct most of the amount in taxes and apply a penalty if withdrawn before 59 and half years.

401K rollover to IRA rules

Rolling over from 401K to IRA is a flawless process. In this process, the plan assets of your former employer’s plan are moved to a traditional IRA from your employer-sponsored plan. The money will be automatically transferred electronically once the paperwork is done. No taxes need to be paid during the process. This was all about direct rollover process from 401K to traditional IRA.

Rolling over to Roth IRA is a little complex process than traditional IRA. It requires after-tax dollar funds. This means you need to pay taxes on the amount that is being converted or transferred from former employer’s plan to IRA.

When you do an indirect rollover, you will get your amount of value depreciating 20 % of the taxes and withholding purposes. If you redeposit the money in IRA within 60 days, you will not need to face penalty and the taxes will be returned to you that you pay for these transfers.

There are various other rules and suggestions that you can involve into so as to get a smooth employer plan with more financial benefits. These benefits encourage you to contribute more to your investment and employer plans to make your future even stronger.