Changing Jobs? 7 Crucial Things You Need to Know About Your 401(k)

Leaving a familiar workplace for a new opportunity can be exciting, but amidst the whirlwind of change, it's easy to overlook your 401(k). It is essential to understand the importance of safeguarding your retirement savings. So, before you pack your desk and say goodbye to your colleagues, let's explore 7 crucial things you need to know about your 401(k) when changing jobs. They are as follows -

Outstanding 401(k) Loan:

Leaving your job could trigger repayment acceleration if you have an outstanding 401(k) loan. Your new employer's plan may not allow rollovers of outstanding loans, forcing you to repay the full balance in a short period, typically within 60 days. This could result in tax penalties and income tax implications if mishandled. Contact your current plan administrator to discuss repayment options before your last day.

Less Than $1,000 in Your 401(k):

Many plans allow you to keep your account open if your vested balance is below a certain threshold, typically around $1,000 (increased to $7,000 in 2024 under SECURE Act 2.0). However, these dormant accounts can incur maintenance fees that slowly erode your savings. Consider consolidating your small balance with your new employer's plan (if allowed) or rolling it over into an IRA to avoid unnecessary fees.

Between $1,000 and $5,000 in Your 401(k):

Your options might be limited if your vested balance falls between $1,000 and $5,000 (or the threshold set by your current plan). Some plans may allow you to keep your account open, while others may force a cash withdrawal or rollover into an IRA. Carefully weigh the pros and cons of each option. Cashing out could lead to tax penalties and hinder your long-term retirement goals.

What to Do with Your 401 (k) After Leaving a Job:

Here are your primary options for handling your 401(k) after leaving an employer:

• Leave it in your current employer's plan (if allowed): This might be a good option if you like the investment choices and associated fees. However, keeping track of multiple retirement accounts can be challenging.
• Roll it over to your new employer's plan (if allowed): This allows you to consolidate your retirement savings into one account, potentially simplifying your investment management.
• Roll it over to an IRA: This option offers more investment flexibility than most employer-sponsored plans. However, IRA contribution limits may apply.

How Long Do You Have to Move Your 401(k) After Leaving a Job:

Generally, you have up to 60 days from the date you leave your job to roll over your 401(k) funds into another qualified retirement plan without incurring tax penalties. However, 20% will be withheld for federal income taxes if you receive a check for your account balance. This can be rectified by depositing the total amount into your new plan or IRA within the 60-day window.

Keep Tabs on the Old 401(k):

Even after rolling over your 401(k), it's wise to monitor the performance of your old account if you left any funds behind. Many plan providers offer online access to account information.

How Much of Your 401(k) Do You Get When You Leave an Employer:

Your vested 401(k) balance belongs to you when you leave your job. Vesting refers to the portion of your employer contributions that become yours. Most plans follow a vesting schedule, with vesting rights increasing over time. After you're fully vested (typically after five years), all your contributions and any employer contributions become yours to keep.

Navigate 401(k) Options During a Job Change with Everett Callahan Insurance Agency

Navigating 401(k) options during a job change can be complex. Our team of experienced advisors at Everett Callahan Insurance Agency can help you understand your options and make informed decisions about your retirement savings. Contact us today for a free consultation. Call us at (800) 624-8976 to secure your financial future!

Contact Us