Retiring or changing jobs
Your 401(k) when you leave a job: four choices, side by side
Leaving an employer means deciding what happens to the retirement savings you built there. There is no single right answer, and the choice is yours. Janie lays out every option, including the ones that don't involve her at all.
The four paths
- Leave it in the old plan: simple, and your money keeps its current investments and protections. You can't add to it, and you will need to keep track of it.
- Move it to your new employer's plan: keeps everything in one place, if the new plan accepts rollovers.
- Roll it into an IRA: gives you more choices, including an IRA funded with a fixed or indexed annuity if you want lifetime income options or protection from index losses.
- Cash it out: the money is taxed as income, and before 59½ a 10% additional tax may apply. It is usually the most expensive option.
Direct or by check: why it matters
Compare before you move anything
- Fees and expenses in the old plan, the new plan and any IRA or annuity.
- Services, investment or crediting choices, and withdrawal rules.
- Protection from creditors, which differs between workplace plans and IRAs.
- Required minimum distributions and the age they start.
- Surrender periods if part of the money goes into an annuity.
The IRS pages on what happens to a retirement plan when you leave a job (opens in a new tab) and rollover rules (opens in a new tab) are good places to read more. A tax professional can tell you how each choice affects your return.
Rollover questions
Do I have to move my 401(k) when I leave?
Not always. Many plans let you leave the money where it is if the balance is above the plan's minimum. Check your plan's rules and fees.
What is a direct rollover?
The plan sends the money straight to the new plan or IRA. Because you never hold the funds, no taxes are withheld. If the check is made out to you, the plan must generally withhold 20% for taxes, and you have 60 days to deposit the full amount, including the 20% withheld (using other money), to avoid tax.
Should an annuity go inside an IRA?
An IRA already grows tax-deferred, so an annuity adds no extra tax deferral there. The reasons to consider one are other features, such as guaranteed lifetime income or protection from index losses, weighed against its costs and surrender period.
Can Janie tell me which funds to pick?
No. Janie is an insurance agent, not a securities representative or investment adviser, so she does not recommend stocks, mutual funds or other securities. She can explain how an insurance option works and what you would give up to move money into one. For advice about your investments, talk with a registered representative or investment adviser.