Taking on a new job always brings with it the issue of what to do with your 401k plan. Of course, you could simply leave it where it is, put it into another 401k, or you could change your program and put it all into an IRA. Overall, your best deal may come if you move it to a new 401k.
Before you do anything, though, you will certainly want to discover when your funds are fully vested. Many employers that provide matching funds have a vesting period attached, and if you leave early and move your 401k plan, you could lose some or all of those funds. In order to keep that free money, you should wait it out to be able to keep it all.
Four reasons you should move your 401k after getting a new job:
Your Employer May Cash Your Money Out for You
BankRate.com says that when you leave a company your employer has options – if you have less than $5,000 in the account. If you have less than $1,000, your employer may simply close out your account and hand you the cash amount. If there is an amount $1,000 to $5,000, the average employer will roll your money into an IRA. For accounts larger than this, the employee has the choice of what to do with the money.
Save Money by Having It Rolled Over Into a New 401k Plan
Because of penalties involved when withdrawing money from a 401k, you want to see if your old employer will directly transfer your money into the new account. Doing it any other way could result in heavy taxes (possibly 20 percent) and penalties (10 percent).
A New 401k May Offer better Options
Different companies may offer some options that another company does not have. The new company may enable you to get better options, says Wilmington Trust, which can give you a better package. This may include more choices of funds and possibly lower costs. It may even be to your advantage to take the existing 401k and put it into an IRA, and start a new 401k plan at your new place of employment. This would enable you to have a greater flexibility with your retirement money.
Possibility of Getting a Loan
Putting your old 401k money into a new one at your current place of employment may give you the opportunity to get a loan from it. FreeFromBroke.com mentions that you cannot get a loan from a 401k if you are no longer working there, and you cannot get one from an IRA, either. Although a loan against your retirement is not recommended, it is an option if absolutely necessary.
You May be Able to Get Rebalancing
When you start a new 401k plan and transfer money to it, you may be eligible for rebalancing your portfolio. There may also be automatic options to do this periodically, and it may be possible to get alerts whenever your allocations change.
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