You’ve Left Your Employer: Now What?
Either by choice or force, you have left your previous employer. After the dust settles, you look back and realize you may have cut ties with your company, but there’s still something left you need to collect:
Your 401(k)
Some people let these 401(k)’s sit in their old companies accounts for YEARS, forgetting that they even exist until it’s ‘time’ to consolidate their assets a few months before retiring (*hint, hint, you shouldn’t wait until 2 months before retiring to get your finances in order*).
Before you move onto the next job, or go out to greener pastures in retirement, make sure you decide what you want to do with your 401(k). A plan participant leaving an employer typically has four options (and may engage in a combination of these options), each choice offering advantages and disadvantages.
Option 1: Cash it in
I will start by saying I don’t believe our office has ever recommended that someone cash in their retirement account. If you are under the age of 59.5, not only will you have to pay taxes on ALL of the money that was in your retirement plan, you’ll also receive a 10% penalty for early-withdrawals. No thank you!
Option 2: Leave it in the plan you have now, or roll it into your new employer’s 401(k)
Most people seem to do this option; either because they don’t have anywhere else to put the money, or they’re told that it’s ‘cheaper’ to keep it inside of their employer’s 401(k).
It’s true, the fees for hosting it inside of your 401(k) may be lower than having the account managed somewhere else. Instead of nickle and diming your way through your working years, consider this:
Opportunity cost is the loss of gain that could be produced by other alternatives. So sure, you could keep your money in your 401(k) that only gives you 20-40 investment options that you randomly move around with no real reasoning. OR, you can have a licensed professional who has spent YEARS studying portfolios, and will tactically reallocate you into whatever investment is the best option for you because they don’t have to pick from the small 401(k) menu. The hope is that overtime, you’ll have investment returns that more than cover the additional cost of working with an advisor
Option 3: Roll it into a Rollover IRA
If you’ve found the right advisor, who isn’t charging you an arm and a leg, consider rolling it over into a Rollover IRA. This isn’t a taxable event, so no surprises in April or early-withdrawal penalties.
Once you roll it over, you can have lengthy conversations with your advisor about your goals with the money, and have a Wealth Manager monitor it for you. A few times a year, you can chat with them about where the account stands, and let them navigate the market with you.
As always, if you have any questions, please reach out. I would love to help you work towards your financial goals.
-Chris Mavrakos, CFP®