Identify Your Needs

What will happen to my 401(k) when I change employers?

You’ve decided to accept a position with another company. But before you rejoice too much about your new job, take some time to handle your 401(k) now. Observing some specific rules may help you avoid losing a portion of your retirement funds to state and federal taxes, as well as IRS penalties - especially if you’re less than age 59 ½.

While this may seem far less important at the moment than fitting into your new job and impressing your boss and coworkers, it could greatly affect your financial future. Before making a decision, consult with an experienced financial advisor who can help you protect your 401(k) through the transition.

Consider these options - and the potential consequences - regarding your retirement savings.

Do you want to leave your money invested in your current employer’s 401(k) plan until you retire?

This may seem like the easiest way to handle the funds, but your former employer might not have your best interests as its top priority - which could cost you in the end. And, if your vested balance is less than $5,000, your employer has the right to distribute the funds whether you want the money now or not. The only relief is that you get to choose how to take the distribution.

Do you want to take a lump-sum distribution now?

Although this may seem like a good idea at first, you won’t be doing yourself any favors. Ordinary income taxes would apply - and a 10% IRS penalty for early withdrawal if you’re less than age 59 ½ - and possibly state taxes too. Moreover, it could take years to replenish those funds.

If that’s not enough to convince you, think of your future. Your 401(k) is effective because earned capital gains are compounded over time. Basically, this means the longer your money remains invested, the more you could potentially gain with earnings on top of earnings. Withdrawing the money now means you’ll lose all the compounded earnings gained over the years.

Do you want to roll your 401(k) into another qualified plan?

This is a better option if you’d like to continue saving and deferring taxes while maintaining control over your money. You may consider a direct IRA rollover, such as the Raymond James traditional IRA. It allows you to carefully select investments based on your personal financial objectives, maintain tax-deferred status and preserve ongoing tax-deferred earnings and capital appreciation.

Of course, other retirement options may be available to you. Following a thorough discussion of your financial situation with your financial advisor, you’ll be in a better position to start your dream job. Just don’t forget about your 401(k) - you’ve worked hard for it and your financial future depends on it.

For more information about making the right 401(k) choice, contact your Raymond James financial advisor or use the Office Locator to find our office(s) nearest you today.