What happens to my 401(k) if I leave my current job?
If you leave your job, you may be wondering what happens to your 401(k) that you’ve been contributing to. Good news! You have a few options, including but not limited to, keeping it where it is, rolling over to your new employer’s retirement plan, rolling over to an IRA, or cashing it out.
Roll over your 401(k) into an annuity
Rolling your 401(k) into an annuity can be a suitable option for individuals, depending on their financial goals and circumstances. Here are several reasons why someone might consider rolling over a 401(k) into an annuity:
Guaranteed Lifetime Income: Annuities can provide a steady stream of income for life, offering financial security in retirement. This is particularly attractive for individuals who want to ensure they won't outlive their savings and need a reliable income source.
Protection Against Market Volatility: Fixed and certain types of indexed annuities offer protection against market downturns. This can be appealing for retirees who are risk-averse and want to safeguard their principal from market fluctuations.
Predictable Payments: Annuities provide predictable and consistent payments, which can help with budgeting and financial planning. This stability can be valuable for retirees who want a dependable income source in addition to other retirement savings.
Tax Advantages: Annuities offer tax-deferred growth, meaning you don't pay taxes on the earnings until you start receiving payments. This can be advantageous for individuals who want to minimize their current tax liability and potentially be in a lower tax bracket in retirement.
Customizable Options: Annuities come in various forms, allowing individuals to choose options that align with their needs. For instance, some annuities offer inflation protection, survivor benefits, or long-term care riders, providing customization based on individual requirements.
Simplicity and Ease of Management: Annuities can simplify retirement planning by consolidating assets into a single product. This ease of management can be appealing for individuals who prefer a straightforward approach to their finances.
Legacy Planning: Certain annuities allow individuals to provide a death benefit to beneficiaries, ensuring that loved ones receive a portion of the annuity's value if the annuitant passes away. This can be a valuable feature for individuals concerned about leaving a financial legacy for their heirs.
It's important to note that rolling over a 401(k) into an annuity also comes with considerations and potential drawbacks, such as fees, surrender charges, and limited access to funds. It's crucial for individuals to carefully assess their financial goals, risk tolerance, and the terms of the annuity contract before making a decision. Consulting with a financial advisor or retirement planning expert is advisable to determine if an annuity rollover aligns with one's overall retirement strategy.
Other options:
Roll your 401(k) into your new employer's plan
You may want to see if your new employer offers a 401(k). If they do, you can rollover your existing 401(k) to your new employer’s plan once you are enrolled. This typically requires minimal paperwork and saves you from owing taxes or missing deadlines.
Roll over your 401(k) into an IRA
Rolling over a 401(k) into an IRA is an increasingly popular option. The account will be an individual account, and you have a plethera of options with institutions and plans to choose from, as opposed to being limited by an employer-sponsored plan. You can make a direct rollover, which allows you to transfer funds directly from the existing 401(k) to the new IRA.
Cash out your 401(k)
Another option is to cash out by liquidating your old 401(k), but most financial advisors caution against this tactic as it reduces your retirement savings drastically and unnecessarily, and you will pay a large amount of taxes on the entire amount. The tax burden will likely not be worth the cash-out. You will also likely be subject to a 10% early withdrawal penalty.
Keep your 401(k) where it is
Most 401(k) plans provide the option for you to leave it where it is if you have more than $5,000 invested after you leave your current employer. Depending on the situation, leaving your 401(k) may be beneficial to you. However, if it is likely that you will forget about the account or it has not been adventageous to you, it may be time to start seeking other options.
The important thing to remember?
If you have a 401(k) and leave your employer, your 401(k) will stay where it is until you decide to move it or do something with it. You have several options, including the ones outlined above. Be sure to weigh out all the pros and cons and speak with a financial advisor before making a decision.
This information is intended for information purposes only. Any reader understands that Apex Benefit Group is not providing legal advice, tax advice, or professional services. This article serves to offer practical information regarding the subject matter and is not a comprehensive resource.
If you would like to discuss your retirement options with a specialist, please contact us today.
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Each type of annuity has its own features and benefits, and understanding the differences is crucial in making informed decisions tailored to individual financial goals and risk tolerance levels.