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Leave the Money Behind or Take it Along?
OK, we’re pretty sure that taking the cash is probably not the best idea, so what about our other options?
- You could leave the money in your old employer’s plan. This isn’t such a bad option. The money is still yours and you can come back at any time and move it when you think the time is right.
- You could roll the money into your new employer’s plan. This is a good option if your employer’s plan permits is and if you like the idea that your money is staying with you wherever you go.
- You could put the money in an IRA. This is a great idea for people who like to maintain control over their funds and who may someday want to roll the funds into another employer’s plan, but may not be so sure yet.
You should consider the following factors as you make your decision:
- Available Investment Options: Determine which plan will provide the greatest latitude with investment options.
- Fees and Expenses: Calculate the fees and other expenses are for each type of plan. Staying with your old employer’s plan may result in you paying maintenance fees. Look at your new plan. Does it compare favorably with your old plan? What are the fees if you sock your money away in an IRA?
- Protect your Money from Creditors: Determine if your creditors can access your 401(k) account or your IRA. Find out where your money will be best protected.
- Accessibility of Cash: Which option has the easiest access to cash in the event you want to borrow money in the future: a 401(k) or an IRA?
Retain the Money In Your Previous Employer’s Plan
Your previous employer may allow you keep your funds in your old plan if you haven’t decided where to put your 401 (k) funds, and if you have at least $5,000 in your 401(k) plan. (Accounts with less than $5,000 are usually forced into your hands)
Also, if your new employer doesn’t offer a 401 (k) plan, this may be a good option, particularly if you are satisfied with your old plan. The money is safe plus you’ll avoid the financial pitfalls that result from cashing out
Things to consider if You Stay with Old Plan
There may be disadvantages to staying with the old plan, particularly if your new employer’s plan offers similar or better investment options. Here are things you might consider:
- Compare variety & quality of investment options to your new employer’s plan
- Check policy changes for ex-employees, as there may be additional maintenance fees.
- Move your 401(k) Funds into Your New Employer's Plan
- If your employer offers a 401 (k) plan, find out when you will be eligible to participate. Consider leaving your funds with your old employer if there is a waiting period.
- When you do become eligible, make sure that the rollover checks are written directly to the new plan administrator. (trustee to trustee transfer) Make sure the checks aren’t written to you, or you will suffer all the dire consequences of a cash out, including the 20% deduction, and all the taxable headaches that will certainly follow.
Things To Consider If You Go With The New Plan
Here are a couple of considerations to think about if you decide to move to your new employer’s plan:
- Are the investment options better.
- Does this plan have lower fees?
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