The Problem with Your Old 401(k)

Changing jobs often leaves many with old 401(k)s. Explore your options to make the most of your retirement savings.

Table of ContentsRequest a Consultation

---

Managing Your 401(k) in Today's Job Market

It used to be that you went to work for a company, stayed for 40 years, retired with a pension, and maybe got a nice watch as a going-away present. Anymore, that is a rarity.

Now, the average American changes jobs every four years, which profoundly impacts one's ability to save for retirement.

So, you’ve left your job and have an old retirement plan. What do you do? What are your options?

The Easiest 401(k) Solution

The easiest solution is to leave it behind. Many retirement plans will allow you to leave your money behind once you leave the company.

This might be the best solution for some, particularly if you’ve retired and are over 55 but not yet 59 ½ years old. However, for many people, this can be a mistake. Here are some reasons why...

Employer Changes

The largest employer in Cedar Rapids, IA went through three different names and two different 401k providers, all within about two years. If it can happen with a large employer, it can certainly happen with a smaller one!

Expert Advice on Managing Your Old 401(k)

While some 401k plans offer investment advice (usually for an additional fee), most do not. Are you confident that your current investments match your overall goals and objectives?

Avoid Cashing Out Your 401(k)

While you don’t have to leave your money behind, some options are better than others. One option is to cash out the account, which may be tempting for small balances.

But be cautious: cashing out usually incurs income taxes on the withdrawn amount and an extra 10% penalty if you’re under 59 ½. Most importantly, cashing out means you lose valuable time in the market to grow your retirement funds through compound interest.

Rollover to a New Employer’s Plan

If allowed, a better option might be to roll over your 401(k) to your new employer’s plan. This avoids taxes and penalties, keeps your money growing, and makes tracking easier since you’re actively working there. However, be aware of potential pitfalls:

• Higher or lower costs compared to your old plan

• Limited investment options that may not suit your goals

• Lack of investment and financial advice

• No retirement plan at all if your new employer doesn’t offer one

Consider Rolling Over to an IRA

Another option is to roll your old 401(k) into an IRA (Individual Retirement Account). An IRA provides almost unlimited investment options and control over whom you work with.

Advisors can help tailor strategies to your unique situation, offering personalized advice as your goals evolve.

Be mindful, though—an IRA may not be ideal if you retire between ages 55 and 59 ½. It may also have different costs and features compared to your 401(k), so research thoroughly.

Choose the Best Option For You

There’s no one-size-fits-all answer for handling an old 401(k). Some may benefit from leaving it in their current plan, while others might find a rollover to a new 401(k) or IRA advantageous.

Speak with a financial advisor to explore which option best aligns with your retirement goals!

Request a Consultation

Please be sure to speak to your financial professional to carefully consider the differences between your company’s retirement account and an investment in an IRA. These factors include, but are not limited to, changes to the availability of funds, withdrawals, fund expenses, and fees.