- About Us
- Retirement Planning
- Investment Planning
- Estate Planning
- Life Goals
- Business Succession Planning
- Roth IRA Conversion
- The Planning Process
- Financial Glossary
Companies of Focus
- Lab Employees
Oil Company Employees
- Chevron Newsletters
- How Personality Can Affect Performance
- Addressing Financial Planning Issues - Back to Basics
- 11 Financial Resolutions for 2011
- Midyear Review
- The Retirement Risk You Didn't Realize
- A Retirement Savings Tool You Might Be Missing
- Planning for a Long Retirement
- Roth IRA Conversions - a Golden Opportunity
- Demystifying IRA Distributions
- Simplifying Retirement
- Plan Today for Retirement Tomorrow
- Managing Your Cash Flow in Retirement
- Budgeting to Retire
- Investment Risk - There's No Escaping It!
- Lessons Learned from the Market
- The Folly of Market Timing
- Dollar Cost Averaging
- Budgeting the College Lifestyle
- Fitting College Funding Strategies into your Overall Picture
- Five Ways to Cover College Tuition
- Teaching Children About Money
- Prepare Your Estate Plan for Changes in Tax Rules
- Covering All Bases for Timely Estate Planning
- Determining the Need for Disability Income Insurance
- The Hidden Cost of Health Insurance
- The American Taxpayer Relief Act of 2012
- Get Yourself in Tip-Top Tax Shape
- Think Twice About Your ESIP
- Talking Taxes
- Year End Tax List
- How Inflation Affects You
- Now That The Election's All Over
- The Flows in Your Plan
- How to Handle a Financial Windfall
- Dealing with Restructuring
- The Costs of Living Longer
- Tech Company Employees
- Client Center
- Contact Us
When people change or otherwise leave jobs, they often wonder what to do with the money in their previous employer's 401(k) plan. In this situation, people usually decide between four different options:
- Staying in their former employer's plan
- Rolling over to a new employer's plan
- Taking a lump sum
- Rolling over into an IRA
Some decide to let the money continue to grow in the plan until they are ready to take distributions at a later date, if allowed by their old employer. This maintains their tax-deferred status while continuing access to any unique benefits exclusive to that plan.
Many people decide to transfer the money into their new employer's 401(k) plan, to which they will add any future contributions. They thus continue tax-deferred status until they are ready to take distributions. The new employer's plan may offer additional investment options and other benefits; however, there may be a waiting period or other restrictions that were not present in the old plan.
Others take the account value as a lump sum, at which point they pay any applicable penalties (such as a 10% early withdrawal penalty) and current income taxes.
Many others decide the best option is to roll over their money into an Individual Retirement Account (IRA). Like a 401(k) account, an IRA allows the money to continue to grow tax-deferred, but with several advantages over a 401(k) plan.
While 401(k) plans have limited investment choices, most IRAs allow people to invest their money in a wide variety of mutual funds, stocks, and bonds of their choosing. This additional flexibility can sometimes be intimidating, which is why many people choose to work with a financial planner who can advise them on a solid investment strategy.
Furthermore, while 401(k) plans usually require participants to work through the 401(k) provider, most IRAs allow people to invest their money more freely. And when rolling over a 401(k) account into an IRA, people avoid the taxes, penalties and other fees that would exist if they simply took the account value in cash.
If you decide to rollover your 401(k) into an IRA, it is important to note that any loan provisions allowed by 401(k) plans might not be available.
There are different fees, tax treatment, underlying investment options, and risks associated with all four options. Therefore, it is important to work with a financial planner to help you fully understand the process and decide what is best for you.