3 Options For Your 401(k) When Changing Jobs

Consider your retirement fund for future benefits
What to do with a 401k when you change jobs.

If you are lucky enough to be leaving your current employer for bigger and better things, there are probably a lot of things on your mind. One thing you shouldn’t lose sight of in the shuffle is what to do with your 401(k)–especially if you’re currently at your first  401(k)-offering job.

There are a few things you can do with your 401(k) when you change jobs, but there is one thing you should avoid doing unless it’s absolutely necessary: withdrawing from your retirement before you turn 59 ½. (You’ll have to pay penalty fees on top of losing your retirement savings if you do this.)

With that being said, here are three things you can do with your savings. 

Leave the money in your current 401(k).

This isn’t necessarily a permanent solution, and some employers may require you to have a minimum 401(k) balance in order to leave the account as is. If you leave the money in your old employer’s 401(k), you also will not be able to contribute to this account anymore. You’ll also now have multiple 401(k)s, assuming your future employer offers a plan, too.

Rollover the money into your new employer’s plan.

This way all of your future and past retirement savings will be in one spot. If your old employer and your new employer use the same retirement firm, this move will be remarkably easy. If they don’t,

This option may not be immediately possible if your new employer requires that you work for them for a certain amount of time before you’re eligible to open a 401(k).

Rollover your money into an IRA.

With an Individual Retirement Account (IRA), you set money aside, use that money to purchase investments, and ultimately withdraw that money when you retire. IRAs are less restrictive than 401(k)s, but you’ll want to do some research and planning before you jump into one. They’re certainly not for everybody.

There are two types of IRAS: Traditional, wherein you pay taxes on your invested money when you withdraw it; and Roth, where you pay taxes on your contributions at when you invest them–meaning you withdraw your retirement tax-free.

When it comes down to it, there is no right or wrong answer here–it really depends on your personal financial situation and preferences. That being said, here are some notes to keep in mind:

  • If your new employer offers a 401(k) plan, they will most likely automatically enroll you in it. You may have to manually opt-out, if you don’t want to be enrolled.
  • If you’re moving your old 401(k) savings into your new employer’s plan, or an IRA, do it directly, not indirectly.
  • If you’re moving your 401(k) savings into an IRA, you should still enroll in your new company’s 401(k) plan if they match contributions.

Published by

Tom S.

Tom is a 2006 graduate of UW Madison, currently residing in Verona with his wife and 2 girls. He has been passionate about writing ever since he was 15 years old, and displays that same enthusiasm in his work today. When he’s not sharing insightful financial wisdom, you can find Tom chilling on the Union Terrace, enjoying craft beer at the Great Dane, or hiking at Governor Nelson State Park. In the Fall he loves to take his family to Badger Football games!