When you change jobs in the United States, it is easy to focus on the new office, coworkers, and the new salary. However, there is a very important financial asset you must not forget along the way: your 401(k) or 403(b) retirement account accumulated with your previous employer.
The 4 options for your accumulated 401(k)
When formally leaving a company, you have four legal alternatives to manage your accumulated funds:
- Leave the money where it is: If your balance is over $5,000, most companies allow you to keep the money in their previous plan. However, you will no longer receive employer matching contributions and you will lose direct control over the funds.
- Move it to your new job's 401(k): If your new employer offers a retirement plan and accepts incoming transfers, you can move your savings there. This consolidates your retirement funds into a single active account.
- Withdraw the money in cash: This is generally the least advisable option. If you are under 59 and a half, the IRS will charge you an immediate 10% penalty, in addition to withholding the corresponding income tax (usually 20% or more). You will end up losing nearly a third of your savings.
- Execute an IRA Rollover (Direct Transfer): This consists of moving the balance to an Individual Retirement Account (IRA) that you control personally. This alternative gives you access to more investment options, guaranteed protection, and avoids fines and taxes.
Why choose an IRA Rollover?
Transferring to an IRA gives you the freedom to choose financial vehicles that fit your personal goals. For example, you can move your funds to an indexed annuity that offers risk-free growth in case of stock market declines, ensuring that the money you worked so hard to save does not suffer losses.
The secret to a successful retirement is control over your assets. Do not let your old accounts lose value due to lack of attention or hidden fees.
How is the process performed?
The process is simple but must be done carefully to prevent the IRS from considering it a cash withdrawal. Through a Direct Rollover, funds are transferred directly from your old plan administrator to your new IRA account. At Enterprises Capital LLC, we guide you step-by-step through the paperwork to consolidate your accounts without penalties.