From Job to Job: What to Do with Your Previous Retirement Account

Yellow envelope with 401(k) Statement Inside

Way to go! You scored a new job! 

Now, as you embark on this exciting new endeavor, there’s one topic bound to come up: retirement plans. And you might think:

“What about my plan with my previous employer?”

“What do I do with the money in that account?”

It’s wise to understand all your options when planning on what to do with your previous retirement accounts. So, let’s walk through some options for what you can do with the money saved in them. 

Option 1: Keep it right where it is. 

Your previous employer may allow you to keep the money in your plan. This keeps things simple and maintains the potential for tax-deferred earnings to grow. You can keep everything invested as is, but you won’t be able to make any new contributions to your account. You’re also limited to the investment options offered through the old employer plan.

Option 2: Transfer it into a new account.

You can transfer the money into a plan offered through your new employer, which continues your tax-deferred growth potential. The benefit here is that everything is consolidated into one account, but again, you’re limited to the investment options available through the new employer plan. Review the new plan to make sure you understand the rules for rolling over your money before going this route.

Option 3: Cash it out.

Another possibility is to withdraw your money in cash, BUT you will face a tax liability. Brace yourself for 20% federal withholding on top of the standard income tax. If you’re under 59.5 years young, an additional 10% federal tax is withheld. State and local taxes may also apply, reducing the amount you take home even more! Make sure you understand ALL tax implications before choosing this option.

Option 4: Transfer it into an IRA.

You can also directly roll your account into an Individual Retirement Account (IRA). This avoids both penalties and taxes while keeping the tax deferral benefits. There is no limit to the number of old employer-sponsored plans you can roll into an IRA. As you change jobs, you can consolidate old employer accounts into one IRA. With an IRA, you also have more investment options than a typical 401(k) or 403(b), so you get to be in the driver’s seat, so to speak. If you’re not sure where to start, we’re happy to help!

Remember, the money you accumulate in an employer plan can be a major source of retirement income. How you choose to manage it can have a huge impact on your savings and set you up for a fun, successful retirement. If you are on the fence about what to do, give us a call or shoot me an email. We’d love to help guide you through your different options and help you find the best one for your circumstances! 

Benchmark Wealth Management
5855 Ridge Bend Road
Memphis, TN 38120

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPIC.

The opinions voiced in this material are for general information only and are not intended to provide
specific advice or recommendations for any individual. There is no assurance that the views or
strategies discussed are suitable for all investors or will yield positive outcomes.
Investing involves risk including possible loss of principal.

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