Changing jobs is an exciting step, but it also brings important financial decisions. One of those is what to do with your 401(k) from your previous employer. You generally have four options: leave it in the old plan, roll it into your new employer’s plan, roll it into an IRA, or cash it out. Here’s a quick look at why rolling over your 401(k) might be the best move.
Benefits of Rolling Over Your 401(k)
1. Simplified Management
By rolling over your 401(k) into your new employer’s plan or an Individual Retirement Account (IRA), you consolidate your retirement savings, making it easier to track and manage.
2. More Investment Options
If you roll over your 401(k) into an IRA, you may gain access to a wider range of investment choices compared to your employer’s plan, giving you more control over your investment strategy.
3. Lower Fees
Some 401(k) plans come with high administrative and management fees. Rolling your funds into an IRA or a new plan with lower fees can reduce costs, allowing more of your money to grow.
4. Avoid Taxes and Penalties
By rolling over your 401(k) directly, you avoid taxes and penalties that come with cashing out your account early. This keeps your retirement savings intact and working for your future.
When to Consider Leaving Your 401(k)
Leaving your 401(k) with your old employer can make sense if the plan has excellent investment options and low fees. However, maintaining multiple accounts can be cumbersome and harder to manage over time.
Rolling over your 401(k) when changing jobs often makes sense, especially if it simplifies your portfolio, reduces fees, or provides better investment options. Weigh your choices carefully and consider consulting with a financial advisor to ensure you’re making the right move for your retirement.