Planning for a Bright Future

About Me

Planning for a Bright Future

When I graduated college, I landed a dream job teaching accounting at a university. For five years I enthusiastically taught my students important accounting principles. During this time, I put a significant portion of my paychecks into a retirement fund. Because I’ve always been extremely conservative with my finances, I invested all of my cash into money market funds. Unfortunately, this decision did not yield great results. Now that I’m older and wiser, I’d like to rectify the retirement mistake I made when I was younger. On this blog, I hope you will discover the best types of funds to include in your retirement portfolio. Enjoy!

3 Options For Your 401K Plan At Your Old Job

Did you recently switch jobs? Did you still have a 401k balance at your former employer? If so, you're not alone. Many workers have 401k plans at several different employers because they either forget to move them or they're not sure what to do with them. The good news is that you have options available. If you have a 401k plan at a former employer, you may have several options to choose from. Keep in mind, your balance usually must be vested for you to do anything with it. If your balance is not vested, you may not have access to it. The human resources department at your former employer should be able to advise you on whether it is vested. Here are three popular options for 401k plans:

Withdraw it. If your balance is vested, you always have the option to withdraw the money and receive a check for it. However, keep in mind that you may have to pay taxes and penalties for doing so. Withdrawals from 401k plans are usually taxable, so the plan administrator may automatically withhold taxes from the check. Also, if you are not yet age 59 1/2, you may have to pay a 10 percent early penalty on the withdrawal. However, you may be able to have that penalty waived if you meet certain criteria, such as being disabled or having excessive medical bills.

Roll it into your plan at your new employer. If you don't want to withdraw the balance and face potential penalties, another option is to roll it into the 401k plan at your new employer. The benefits of doing so are that you can then have all of your 401k funds in one place. That may make it easier for you to manage your investment choices and keep track of your performance. Contact the administrator of your current plan and the plan at your former employer to get the necessary forms to complete this type of rollover.

Do an IRA rollover. A third option is to rollover the funds in your 401k into an IRA. An IRA is an individual retirement account, which a savings vehicle that offers tax advantages for saving for retirement. Traditional IRAs have the same tax treatment as 401k plans, which means you can roll your 401k funds into the IRA without any tax consequences. You also avoid an early withdrawal penalty by doing an IRA rollover. One benefit to doing an IRA rollover is that you may have access to more investment options than would be available in your 401k plan.

Your financial professional can help you decide which option is best for you. Should you decide to do an IRA rollover, he or she should be able to help you complete the transaction.