The 4 Things to Do with Your 401(k) When You Leave a Job

If you’ve recently changed jobs or are considering making a career move, you may be wondering what to do with your 401(k) plan. Managing your retirement savings when transitioning between employers can have significant financial implications, and making the right choices is crucial. In this blog post, we’ll provide insights based on a webinar hosted by Randa Hoffman, MBA, EA of RADIANT Wealth Planning LLC and RADIANT Tax Services LLC, with a focus on California Financial Planning and Tax Services. We’ll explore the four main options for handling your 401(k) and discuss the benefits and downsides of each.

Introduction: RADIANT Wealth Planning’s Unique Approach

Before delving into the options for your 401(k), it’s essential to understand the heart-centered approach of RADIANT Wealth Planning. Randa Hoffman’s vision is not merely about managing finances but also understanding your life’s purpose and aligning your financial goals accordingly.

 

What is a 401(k) and What Can You Do With It When You Change Jobs?

Before we explore your options, it’s important to know what a 401(k) is. In essence, it’s a retirement savings plan that your employer sets up for you. You can contribute to it on a pre-tax basis, which reduces your taxable income. Employers may also match a portion of your contributions, effectively giving you free money for retirement.

 

Option 1: Leave It

Benefits:

• Simplicity: Leaving your 401(k) as-is requires no immediate action on your part.
• Market Growth: Your investment continues to grow with the market, and you may earn dividends and interest.

 

Downsides:

• Limited Investment Choices: You’re restricted to the investment options chosen by your former employer, typically 12 to 20 selections.
• Lack of Diversification: You might not have a diversified portfolio, potentially affecting your long-term returns.
• Limited Control: You won’t have active control over your investments.

 

Option 2: Cash It Out

Benefits:

• Immediate Access: You gain access to the funds in your checking or savings account.
• Short-Term Financial Relief: Can provide temporary financial assistance.

 

Downsides:

• Tax Impact: Cashing out your 401(k) can lead to higher taxes, potentially pushing you into a higher tax bracket.
• Early Withdrawal Penalty: If you’re not yet 59 and a half, you may face a 10% penalty for early withdrawal.
• Impaired Retirement Goals: Withdrawing funds prematurely may hinder your long-term retirement savings.

 

Option 3: Roll Over to Another 401(k)

Benefits:

• Consolidation: You can merge your old 401(k) into your new employer’s plan, simplifying your retirement accounts.
• No Tax Impact: Rolling over to another 401(k) doesn’t trigger taxes since it stays within a pre-tax account.

 

Downsides:

• Employer Limitations: Your new employer must allow rollovers for this option to work.
• Loss of Control: You’ll be subject to your new employer’s investment choices, which may not align with your preferences.

 

Option 4: Roll Over to an IRA (Individual Retirement Account)

Benefits:

• Greater Control: IRAs offer a broader range of investment options and more control over your portfolio.
• Diversification: You can create a diversified investment strategy tailored to your needs.
• Beneficiary Planning: Easier management of beneficiaries, reducing the risk of unclaimed property.

 

Downsides:

• Transfer Limitations: You can only make one transfer from an IRA to another financial institution every 12 months.
• Tax Implications: While the rollover itself doesn’t trigger taxes, you’ll owe taxes when you withdraw money from the IRA in the future.

 

Conclusion: Empower Yourself with Knowledge

Your 401(k) is a vital component of your retirement strategy, and making informed decisions about it is crucial. Each option has its unique advantages and disadvantages, and the right choice depends on your financial goals, employment situation, and personal circumstances. It’s essential to consider your long-term financial well-being when deciding what to do with your 401(k).

 

If you’re uncertain about the best course of action for your 401(k) or need personalized guidance based on your unique situation, consider reaching out to RADIANT Wealth Planning LLC and RADIANT Tax Services LLC. We can provide expert California Financial Planning and Tax Services to help you navigate the complexities of retirement planning and taxation.

 

Take the Next Step:

Empower yourself with knowledge and make informed decisions about your 401(k). Book a consultation with RADIANT Wealth Planning LLC and RADIANT Tax Services LLC today. We’re here to support you on your journey to financial success and a secure retirement.

 

Book a Consultation

 

Don’t leave your financial future to chance. Let us help you create a RADIANT retirement plan!