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Considering Your Options for a 401(k) Rollover

With the current state of our country in the midst of a global pandemic, millions of American’s are transitioning in and out of jobs. We all want to feel secure in our savings plan, so here are some options to consider for your 401(k).

Leave your money in your former employer’s plan, if your former employer permits this.

Choosing this option means you don’t have to make an immediate decision about where to move your savings. Your account stays subject to your previous employer’s plan rules, including investment choices, and well as costs and withdrawals. There are some downsides to this option, including the fact that your range of investment choices and your ability to transfer assets among funds may be limited.

Roll over your money to a new 401(k), if this option is available.

If you’re starting a new job, moving your retirement savings to your new employer’s plan could be an option. Depending on your circumstances, if you roll over your money from your old 401(k) to a new one, you’ll be able to keep your retirement savings all in one place. This makes the most sense if you prefer your new plan’s features, costs, and investment options.

Roll over your 401(k) to a Traditional IRA.

If you’re switching jobs or retiring, this option may give you some flexibility in managing your savings. Traditional IRAs are tax deferred retirement accounts. Some downsides to this option include

  • You can’t borrow against an IRA as you can with a 401(k)

  • Depending on the IRA provider, you may pay annual fees or other fees for maintaining your IRA, or you may face higher investing fees, pricing, and expenses than you would with a 401(k).

Roll over your 401(k) to a Roth IRA.

If you’re transitioning to a new job or heading into retirement, rolling over your 401(k) to a Roth IRA can help you continue to save for retirement while letting any earnings grow tax-free. You will want to consider that you won’t be able to borrow against a Roth IRA as you can with a 401(k).

Take a cash distribution.

While withdrawing all of your money may seem like a good idea in the short-term, be sure you understand the consequences before you do. Money withdrawn will be taxable and subject to a mandatory 20% federal withholding rate. You may also face early withdrawal penalties.

While there are pros and cons to every option, it’s a great idea to contact your financial advisor to find the best option for you.



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