What Happens to Your 401(k) When You Quit Your Job?

Wealthtender

It was the end of 2008. After a long time contemplating it, I finally pulled the trigger and quit my job.  I had to decide what to do with my retirement plan balances. In the first case, it was a 403(b) plan, like a 401(k) for non-profits and certain government entities. In the second, it was an actual 401(k). In both cases, I made the same choice. I’ll spill the beans in a bit, but first, let’s see what options are available for anyone in a similar situation.

If you’re quitting, like I did that first time, or suffering a lay-off like my second time, you have either 3 or 4 options, depending on your account balance.

What You Can Do with a 401(k) Balance When You Leave

1. Leave the money where it is (assuming you meet the minimum required balance, typically $5000) 2. Roll the balance directly or indirectly into your new employer’s 401(k) 3. Roll the balance directly or indirectly into a new (or existing) IRA 4. Withdraw the balance

Pros and Cons of Leaving the Money Where It Is

– Most obvious, though not necessarily most important – simplicity (also known as “inertia”) – this doesn’t require you to do anything special – Your old plan may offer a free or low-fee advisory service that can help you make more informed investment decisions

Pros

– You run the risk of forgetting the old account, losing all that money – Your old plan’s investment options may be more limited than those available to you in your new employer’s plan or through an IRA

Cons

Pros and Cons of Rolling the Money into Your New Employer’s Plan

– Your new plan may offer a free or low-fee advisory service that can help you make more informed investment decisions – Money in a the new 401(k), just as in the old one, has better protection against lawsuits than money in non-retirement plans or IRAs

Pros

– Your new plan’s fees may be higher than those in your old employer’s plan (however, these too are unlikely to be lower than an IRA invested in a “no-load” mutual fund) – Your new plan may not offer a free or low-fee advisory service that your old plan may offer

Cons

More About Money

How Refis and High Inflation Turned 3 Mortgages into Assets that Actually Make Money

20 Easy Ways to Make Money Right Now