So congrats, you’ve got a new job and you’re excited (or you’re really good at acting like it!) but what are you going to do about the 401(k) from your old job? You’ve got basically four choices:
- Take the money and run! We’re accountants, so obviously we think this is the worst decision by far. Generally you’re going to pay taxes on the distribution at ordinary income rates, and if your new job comes with a pay raise that might mean taking a particularly nasty hit on the taxes. (There are some special rules if you own company stock in the plan, so your mileage may vary.) You may owe a 10% penalty too, unless you’re over 59.5 because that’s what the law says. You also lose out on the possibility of future tax-deferred growth, like a boss (literally, in most cases). You’ll probably also end up spending it on stuff you don’t really need, because who are we kidding here.
- Put it into an IRA. So, you can avoid the immediate tax implications if you roll the money from your 401(k) into an IRA, and the nice bit is that this will give you the authority on how it gets invested. You have 60 days to complete the rollover from when you close out your 401(k), by the way, so don’t dawdle. Protip: ask for a “trustee-to-trustee” rollover to avoid issues.
- Put it into a 401(k) at your new job. If your new employer offers a 401(k) and if they allow it, you might be able to just roll it over into a similar plan. Easy enough, but there might be a waiting period before your can join your new employers job. Ask about this, preferably during one of the interviews so that your new boss thinks that you’re particularly financially savvy.
- Leave the money and run! Your old employer might allow you to stay in the 401(k) plan at least for a while. This might allow you to get around the waiting period mentioned in the previous point, or figure out what else to do. Talk to your old employer about it if you’re considering it, and hope that their HR department is polite to leaving employees.
If you need helpful advice, or if you need more information, we’re here to help. Except on weekends and in the middle of the night . . . usually.