Online Charity Fundraising | When Jobs Change Rollover Your 401k

When Jobs Change Rollover Your 401k

Posted on August 11, 2010
Filed Under 401K's and IRA's, Investing and Speculating | Leave a Comment

It is very important to protect one’s retirement funds.  Enough people change jobs in the course of their lifetime that this can present a challenge.  Someone changing jobs will need to know what to do with the 401k at the previous employer. Two options are to put it in a 401k plan at the new employer or to make it a rollover to IRA.

The simplest action is to perform a 401k rollover. There is no minimum required for investing, so it is good for someone who has not been working long. It is tied to specific funds, but it is guaranteed.

There are some severe drawbacks to rolling a 401k to a new 401k, however.  A 401k is limited. There is no flexibility. Since a 401k is tied to an employer, an employee must abide by the plan’s rules and limitations as long as they are with the company. Some problems one might face are that the investment choices are sparse and that the money is inaccessible until retirement age, except as a loan. Not all companies allow loans on a 401k.

The other option available for moving retirement funds is to roll them over to an IRA. Two types of IRA are available to consumers. They are mutual fund IRAs and Brokerage IRAS. The most flexible is the brokerage IRA. Not only can one invest in mutual funds or index funds, they can also take advantage of Exchange Traded Funds (ETFs). However, a brokerage IRA can also be very expensive. If one chooses this option, they might want to look for discount brokerage firms.

In order to protect one’s retirement funds it is best to roll them over to a different account when changing jobs. This will help them avoid penalties and taxation. The options are rolling over to an IRA or rolling it over to a new 401k. Some IRAs are more flexible than 401k plans.

Are you planning to retire soon, or change employers?  What are your plans to rollover your 401K?

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