In the past, many people stayed at one job, or at least one company, for almost their entire working lives. When they retired, they could typically count on a pension, the value of which was based on their years of service and earnings. But today, workers can expect to hold several different jobs in their lifetime, and to a great extent, pensions have been replaced by 401(k) plans, which place much of the funding responsibility on employees. So, assuming you will change jobs at some point, and you do have a 401(k), what should you do with it?
Here are your basic choices:
• Cash out your plan. If you cash out your plan, your company will likely pay you 80 percent of your account value, withholding the rest for federal taxes. And if you’re younger than age 59 1/2, you may well be slapped with a 10 percent IRS tax penalty.
• Keep the money in your company’s plan. When you leave a company, your employer may allow you to keep your money in your existing 401(k).
• Move the money into your new employer’s plan. If your new employer has a 401(k) and allows transfers, you could roll the money from your old plan into the new one.
• Roll the money over to an IRA. You may find several advantages to rolling your 401(k) over to an Individual Retirement Account (IRA). First, your money will still have the potential to grow on a tax-deferred basis. Second, you can invest your funds in virtually any investment you choose — stocks, bonds, government securities, certificates of deposit (CDs), etc. Third, if you own more than one 401(k) account, you could find it advantageous to consolidate them into a single IRA, thereby, making it easier to allocate and monitor your retirement assets.
• This article was written by Edward Jones for use by Ahwatukee Foothills Edward Jones Financial Advisor Joseph B. Ortiz, AAMS, CRPS. Reach him at (480) 753-7664 or firstname.lastname@example.org. Accredited Asset Management Specialist and AAMS, Chartered Retirement Plans Specialist and CRPS are registered service marks of the College for Financial Planning.