401K Changing Jobs – Your 401k provides you with several options as to what to do with it when changing jobs, especially if the position is more lucrative than your past employment. However, don’t forget about your retirement account because it should go with you.
Never cash out the plan, even if your broker recommends doing so (not many would). Did you know that most people who cash out never resume the account? It’s strange human behavior when it comes to money.
But that’s not the real reason. You will be hit with income taxes, plus a 10 percent penalty, if you’re under the age of 59. Once you cash out, the IRS will be expecting their cut of the share.
In addition, you will also miss out on tax-deferred savings. So remember, never cash out your retirement plan. It’s the worse thing you can do.
There are three things you can do:
Just because you’re leaving one job for another doesn’t mean you can’t just leave the account where it is. Who says you have to take it with you? If you are happy with the plan, leave it where it is.
There are several financial experts who would disagree with the decision to leave your account with your former employer. They suggest having your retirement in one account. If you do decide to roll it over, be sure to jump through all the hoops and finish all paperwork between the two companies. Prepare for red tape.
Most employers these days don’t offer a 401(k) program, so you’re lucky if you found one. An IRA offers a lot of investment freedoms and if that appeals more to you, then it’s the best option. You have plenty of choices when it comes to mutual funds. Visit any bank that offers the account and read up on it before speaking with an agent.