What Should You Do With Your 401(k) When You Change Jobs?
by
Gregory Grant
Compared with just a generation ago, the volatility of the stock market is matched only by the volatility of the workforce. People job-hop with regularity. When people leave jobs behind, what should happen to an important part of the employee's compensation plan, the 401(k)?
"I recommend that people do move their 401(k) plan when they change jobs," says Gilda Borenstein of Merrill Lynch. "Either to a new 401(k) plan where they can have fewer investment choices to manage versus ones from one plan and another plan or I prefer that they move into an IRA roll over account where they have the ability now to not just invest in mutual funds but in individual stocks and bonds that may be more appropriate for them over time."
But is there a catch when the 401(k) is moved? Penalties and other costs for instance?
"There are no costs involved in moving a 401(k) when you leave your job, people sometimes think there are tax implications but there is no tax implication because you are keeping it a retirement account," says Borenstein. "If you either move it to your new plan or if you move it into an IRA roll over account. You're not taking a distribution. There are also no fees involved from the participating plans."
Important decisions have to be made when you change jobs. Most experts agree before you decide anything about your 401(k) it's a good idea to talk with a financial advisor to make sure you stay in step with your long term financial goals.
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