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Tags: finance, ira, know your 401k plan options
 During your lifetime you may be switching jobs a number of times for your own professional career development. It could be that you were miserable in your old job or you want to say goodbye to an overbearing boss, the long working hours with low pay and high stress. Or you may simply want to start in another career much more to your liking.
Whatever your reasons are for changing careers when you do leave don’t forget to bring your 401k retirement plan. This is because once you cut your ties with your previous employer you’re entitled to do what you want with the funds in that 401k fund since it’s your money. Knowing your 401k plan options when you leave your job is important so that you don’t set your retirement back years and lose tens of thousands of dollars in the process.
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Since your money will still be sitting in your previous employer’s 401k account, you need to move it so you can control its investment decisions. This move is referred to as a 401k rollover and it can have a significant impact on your retirement. Rolling over your 401k is typically advisable since not only will it allow you to transfer your existing retirement account into another retirement account but you do it without having to pay unnecessary taxes or withdrawal penalties.
Remember that since you use pre-tax money, any withdrawals will be subject to tax and like a traditional IRA also incurs early withdrawal penalties. When doing a rollover you need to decide where to rollover to. One option is to rollover to your new employer’s 401k or 403b retirement plan.
The advantage of rolling over to your new employer’s plan is that there is typically no investment minimum with such investment funds. Of course if you don’t have enough money in the fund you may not be able to take advantage of diversification since you won’t be able to buy into more than one fund.
And since these are employer sponsored plans you will be stuck with your employer’s investment restrictions. Another option you have is to rollover into a brokerage IRA account. The good thing with this option is that you can do it with almost any financial or investment institution. You also get the flexibility since you will have access to Exchange Traded Funds or ETFs.
If you want to trade in individual stocks or mutual funds you can do so as well. However, cost maybe this option’s biggest drawback. This is because every time you place a trade you will be charged a transaction fee. Compare this with most mutual funds that just have a built in expense ratio.
And if you take advantage of ETFs recurring expenses will be incurred on top of the trade commissions. If lower fees are what you’re after then you can rollover directly into a mutual fund company managed IRA. In most cases there are no commissions or account fees. However, it does not have the same flexibility as the brokerage IRA account.
This is because the IRA is tied up with what the managing company has to offer. So if you want to invest in individual stocks or dabble with ETFs you may need to set up a separate account with the finance company. Each of these options come with its own set of advantages and disadvantages and deciding which one to go with is really dependent upon you.
If you’re confused with deciding which option to take don’t hesitate to speak with a professional financial advisor. Don’t rely on your employer to explain it. After you’ve decided on the option that’s right for you, don’t forget to properly process the paperwork. No matter which 401k rollover option you pick just play it smart.
Properly working with your retirement accounts may just give you the greatest control over your financial future.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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