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What Should You Do With Your Old 401(k)?

April 02, 2024

What Should You Do With Your Old 401(k)?


by Blake C. Knoefel


     When you leave your place of employment, one of the biggest questions you might have is what to do with your 401(k) plan. There are four basic options, each with their respective pros and cons:

     Option 1 - Rolling over into an IRA. IRAs offer expanded investment options, flexibility in withdrawals and tax withholding, the ability to consolidate multiple old retirement plans into a single account, myriad options for active management, and several exceptions for the early withdrawal penalty, all while maintaining your assets in a tax-deferred environment. However, you will lose access to the institutional investments offered in your workplace retirement plan as well as the ability to take a loan if available. Fees and protection from creditors may vary.

     Option 2 - Keeping the assets in your previous employer's plan. This option will vary depending on plan rules. Leaving assets in the old 401(k) will allow you to have continued access to institutional investments, which are investments only available inside employer plans. Unlike IRAs, which offer access to expanded investment options, your 401(k) plan will allow you to choose from a select menu of choices, typically 15-30 mutual funds. Plan and account fees may vary based on plan rules. Withdrawal options will vary based on plan rules. Where IRA creditor protection varies from state to state, 401(k)s offer complete protection regardless of state of residence.

     Option 3 - Rolling assets into your new employer's plan. This option will vary depending on whether your new plan will accept outside assets. This option will be similar to option 2, where investment choices, fees, and withdrawal option will vary based on plan rules. This option also may give you the potential to take a loan from your account, but this option also varies based on plan rules.

     Option 4- Cashing out. This option gives you immediate access to your retirement assets. However, cashing out is a taxable event, and if you're under 59 1/2, it will usually come with an extra 10% early withdrawal penalty.

     Unsure of which option is best for you? Your financial advisor is a great resource to help you navigate the pros and cons of each choice and help you decide. Schedule a call today.



*Registered Representative, Securities offered through Cambridge Investment Research Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative. Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. Cambridge does not offer Tax advice. New South Wealth Management and Cambridge are not affiliated.