It happens to 97% of us — changing jobs. The average American will hold three jobs during the adult working years. Job transitions, whether by choice or not, come with a lot of paperwork. One piece of paperwork you don’t want to neglect is your 401k rollover.
It might seem like one more thing in a pile of things. You might think What’s the harm in leaving it alone? There are several very good reasons to pay attention to that account. Even if it is only $500, you need to plan to roll the account over and into a new account. You can use a 401k rollover to fund an individual retirement account (IRA) or a Roth retirement account. These could be wise choices, even if you are going from one company to another. You are allowed to have more than one retirement account.
So what planning is involved in the 401k rollover process? First, do you have any loose ends to tie up? Did you ever borrow against it? Take a loan for school or home repairs? The balance will be due and if you default, you take a stiff tax penalty.
Next, do your homework on where to land the money. As I said, you can choose to roll it to a new 401k account, at your new company. You can decide that a 401k rollover to IRA is the right answer. With the first scenario, you need to be ready to decide how the money is divided among the various funds. Do you go growth? Or small cap? You need to explore your options. If you have decided to roll the money into an IRA, either traditional or Roth, you need to do some research on the firms available to you. Do you want to use Schwab or Vanguard or someone else entirely?
Do not let the stress of job transition keep you from making these important plans. Take the time today to help ensure that your tomorrow is secure. A few minutes spent today will be worth thousands tomorrow.
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