What happens when you no longer work for an employer? The best option available to you is going to depend on your age and financial position, to a large extent. If you are no longer working due to retirement, your best option may be different than if you are younger and simply switching jobs.
Contrary to what many people imagine, you do have some choices regarding your valuable 401k if you find yourself in this position. The best option available to you is going to depend on your age and financial position, to a large extent. If you are no longer working due to retirement, your best option may be different than if you are younger and simply switching jobs.
Explains investment analyst Paul Dlouhy: "If you do change jobs or no longer work for an employee, you basically have three choices on what to do with your 401k plan." Try to give yourself some time when switching jobs so you can handle any transfer of your 401k, which may take some time to organize.
You may be able to withdraw the money from the account, roll it over into another savings account or leave it where it is in your employer's plan even though you don't work there any more. Many companies allow you to keep your 401k as well as other benefits such as credit union membership, even if you are no longer employed. "Often, leaving the 401k with your old employer is the best option" suggests investment analyst Paul Dlouhy. Your old employer may not be enthusiastic about you leaving your 401k with them, because of the associated costs to them in administering the plan.
Dlouhy offers the following advice if you no longer work for an employer: "Take some time to figure out your options. You may not want to leave your retirement in the hands of a previous employer" If you leave your 401k plan with your old employer, you cannot of course make contributions to the fund, and you may not be able to access your account quite as easily. In addition, many people when switching jobs somehow feel more comfortable if they sever all ties with that employer and start afresh. It's also a good opportunity to examine your 401k and see how the investments are performing and whether you can afford to contribute more each pay period.
To withdraw the money from the 401k is considered the worst option because of the taxes and the penalties, which may amount to around 20% of the total value. Advises Dlouhy on the subject of borrowing from your account "Try to resist the temptation to take money from your 401k unless absolutely necessary" However, if you no longer work for your employer because you are retired and you are aged 59 and half, there are no tax penalties for withdrawal.
Perhaps the best option is to have the funds transferred from your old job to your new employer's 401k plan. (See question 6) If you do transfer money, often referred to as a rollover, the transfer has to be done in a certain way to avoid paying taxes. If you actually take the money yourself, even for a brief time, you are assessed the tax, so to move it you can utilize what is known as "trustee to trustee transfer" thus ensuring no penalties in the transfer process.
