Job Change: 401(k) Considerations

By now, many Boomers have built up a nice little pile of savings in their 401(k) plans. When leaving a job, make sure that pile keeps growing in a tax-deferred account.

You have several options to consider before giving your farewell speech at your good-bye party.

	To Move or Not to Move You may be able to keep the money in your old employer?s plan, or move the funds to the 401(k) of a new employer. You cannot do this with all plans so check with the employer. One drawback: your investment choices are limited to what?s available in those plans.
	The Worst Move The worst move you can make when leaving a job is to just take the 401(k) payout and spend it like found money. They money will be taxed and, in many cases, subject to an additional 10 per cent penalty. Blowing retirement savings also puts a big dent in your long term financial security. Some people who are let go from a job need their 401(k) money for living expenses while unemployed. But avoid this option if you can.
	Seek Expert Consultation If your 401(k) balance includes company stock that has gone up in value, consult a tax advisor. That money may get more favorable tax treatment if it is not rolled over into the IRA. We always suggest that you obtain personal advice from a qualified expert.
	Rollover Accounts Another option is to transfer the money into an IRA rollover account. This gives you the flexibility to invest the funds in a wide variety of investment options. You need to open the rollover account with the IRA provider, such as a mutual fund company or brokerage. Once you have the account number you can then instruct the old 401(k) provider to transfer the funds directly to the new account. The 401(k) plan you are leaving will have the paper work you need to make the transfer. This is a routine transaction for them. Do not have the check made out in your name, or you can face unpleasant tax consequences.