401k Rollovers

So you have worked hard and saved for retirment, but now you have decided to leave your company for a better job. So what do you do with that old 401k?

First things first, don’t cash it out. Many people think “well it’s only a small amount, that money isn’t going to do wonders for me in retirement.” Well you are wrong that balance invested in the long term will grow more than you can imagine. Plus with the tax penalties you are hit with when you withdrawl that money makes cashing out of your 401k not a smart idea.

You have a few options, you can either leave the 401k intact with the company you are leaving and let them manage it still, or you can performa 401k rollover to an IRA.

I prefer the 401k rollover since leaving the 401k in your old company could be problematic if that company ever faces financial issues. If they ever had to declare bankrupcy, your 401k could be tied up for months and even years while the bankrupcy completes. Sometimes you even lose access to manage it, so if you were invested in risky stocks and then the market starts to crash, you could be in trouble if bankrupcy has frozen your account.

Rolling over your 401k to an IRA will allow you to have full control of your money and allows you to have it all in once place, rather than having to manage old 401ks at other companies. Most large brokerages now offer fee free IRA’s that you can sign up for.

Ultimately the choice is up to you, but I’ve had a 401k tied up in a company bankrupcy and I have made the decision that evertime I move to a different job, the first thing I do is to get that 401k rolled into an IRA!

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