If you’ve ever worked for a company, you’ve probably started planning for retirement under your employer. More professionally known as a 401K, these savings plans are a great way to prepare for your senior years. Many individuals stick with the same employer until they retire, but those who leave their job might wonder what to do with their 401K after they’re no longer with the company. Maggi Tax is here to show you your options!
Transfer Your 401K Over to Your New Employer
It’s common for people to leave their current job in favor of a new one. Most reasons for seeking a new position include an increased income, greater benefits, or simply a change of scenery. People may also seek a replacement job after being let go from their previous one. Whatever the reason, it’s entirely possible (and oftentimes advised) to transfer, or roll over, your 401K from your previous employer to your current one. That way, you can continue making contributions automatically through your paychecks and maximize your resulting savings.
Roll the Money In Your 401K Into An IRA Account
Those who are unable or unwilling to pursue a new job after leaving their previous one have the option of rolling over their 401K into an IRA or a Roth IRA account. People commonly go this route if they had been laid off by their past employer or if their new employer does not support a retirement plan. Both types of savings plans work in the same way, with one of the main differences between a 401K and a Roth IRA having to do with taxes. 401K contributions are taken before tax while Roth IRA contributions are made after taxes.
Leave Your Savings With Your Previous Employer
If your 401K contributions under your past employer come out to a total of $5,000 or higher, you have the option of leaving it where it is. Some people choose to do this because they don’t know how else to handle their savings. Although your 401K may be safe this way, you won’t be able to make any further contributions (even out of your own pocket) thus stopping you from reaching your maximum potential.
Cash It Out For Instant Money (With Consequences)
Many people are tempted to pull out their 401K savings after they leave their job to pay off debt or place a down payment on a house. After all, it’s your money so you’re entitled to it whenever you want to use it, right? That may technically be true, but this is strongly inadvisable because withdrawing from your retirement fund before you reach the age of 59 ½ can result in a 10% fee. If you still want to move on with this option, it should at least be for a very good reason. Before you start, you may want to talk with a financial advisor about finding the best approach to this method.
Not Sure What to Do With Your 401K? Ask Maggi Tax!
As you can see, there are many ways to handle your 401K after you leave your job. In order to play it safe and make the most out of your funds, it’s best to speak with an experienced financial advisor to help you find the best possible route. Call Maggi Tax today at (727) 799-1701 to ask about scheduling a complimentary consultation!