I’m Changing Jobs. What Should I Do With My 401(k)?
If you’re changing jobs, here are your choices for what to do with your retirement plan. Although some people take cash distributions, there are often better options.

Take the Money in Cash
Uncle Sam loves early cash distributions. If you’re younger than 59 ½ you will have to pay income tax and an additional 10% penalty! If you’re 59 ½ or older, you will still have to pay income tax but will not have a 10% penalty. Remember, the more money you take out the higher income tax bracket you may be in. Normally people spread out their distributions over time. The federal income tax brackets for 2020 is shown below.

Options that allow you to maintain the tax-deferred status of your retirement plan assets:

  1. Keep the money in your former employer’s plan
    Your former employer must allow you to leave the money where it is if your balance exceeds $5,000. You will not be able to contribute to this account but can still decide how the assets are invested. Your investment options may be limited depending on your company’s plan.
  2. Roll over the money to your new employer’s plan
    By “rolling” over the money to your new plan it allows you to consolidate your money into one account. Investment options are determined by your new employer’s retirement plan.
  3. Roll the Money Directly Into an IRA
    This solution normally offers you the most investment options and flexibility. Some benefits may be moving from a high expense mutual fund to a lower cost option. Another example would be having the ability to buy/sell or rebalance whenever, instead of being restricted to quarterly options that are offered by some retirement plans.

Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Stocks investing involves risk including loss of principal. Rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. Rebalancing may cause investors to incur transaction costs, and when rebalancing a nonretirement account, taxable events may be created that may affect your tax liability.