One of the largest assets owned by Americans, a 401(k) or similar pension plan will be one factor that dictates the kind of lifestyle you will live in retirement. Many people nowadays have been familiarized with the messages of saving a lot and saving early, but what happens when you can’t contribute to a 401(k) because you are no longer employed by the company offering it to you as an employee benefit? Eventually, you will probably contribute to a new employer’s 401(k) or similar pension plan. However, the 401(k) that you left with your former employer leaves you with a few options
- You can cash in your 401(k) (but you’d have to pay a 10% penalty for doing so if you are under age 59½ in addition to triggering a potentially large tax bill, especially if the value of your 401(k) is sizeable).
- Leave it with your old employer (but if the employer changes plan providers, there may be a blackout period in which you won’t be able to access your funds or change your asset allocation).
- Transfer that 401(k) to your new one (assuming the new employer offers a 401(k) and has investment choices that you like).
- Roll it over to an IRA
In some cases, rolling your old 401(k) into an IRA makes sense because you would have the independence to invest that money with a company of your choice rather than leave that choice to your former (or even new) employer. However, there are certain scenarios in which rolling that 401(k) or similar pension plan may initially not make sense and can work to the detriment of the owner. If you have calculated the size of your nest egg needed for retirement and have accumulated the appropriate amount to retire prior to 59½, leaving your 401(k) with your old employer could potentially be the better option. On a similar note, if you contributed to a 457 plan over your career and are considering retirement prior to 59½, leaving your plan with your employer may be an option to consider until you reach 59½. Contact me to review your personal situation and help make a suitable decision with your potentially largest asset.
About Mike Loo
Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to provide a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at firstname.lastname@example.org.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Trilogy Capital, a registered investment advisor. Trilogy Capital and Trilogy Financial are separate entities from LPL Financial.