Option 1: Leave your money in your former employer’s plan
Potential benefits
- No immediate action is necessary
- Earnings remain tax-deferred until withdrawal
- Keep money in plan-specific investment options
- Investment alternatives may include lower-cost, institutional-class products
- Loans and hardship withdrawals may be permitted
- Penalty-free withdrawals permitted if separated from service after age 55
- Potential increased protection from creditors under federal law
- Plan may have lower administrative fees than other options
Issues to Consider
- May have a limited number of investment options
- Withdrawal options may be restricted
- Cannot make additional contributions
- Some plans may not provide access to plan-specific advice
- Plans may have administrative fees (e.g., recordkeeping, compliance or trustee fees)
- Plan may impose limitations (e.g., income distribution or spousal waivers) or plan may be changed by employer (e.g., available investments, fees, services, providers, termination provisions)
- Managing assets across multiple plans or accounts may be difficult
Option 2: Roll assets into a new employer’s 401(k) plan
Potential benefits
- Earnings accrue tax-deferred
- Plan may allow for a loan or hardship withdrawal
- No income tax or penalties with a direct rollover
- Penalty-free withdrawals permitted if separated from service after age 55
- Potential increased protection from creditors and legal judgments
- Plan may have lower administrative fees than other options
- Investment alternatives may include lower-cost, institutional class products
- Access to plan-specific advice
Issues to Consider
- New employer’s plan may not accept rollovers
- Withdrawal options may be restricted
- Typically limited investment choices
- May need to liquidate investments
- Plans may have administrative fees (e.g., recordkeeping, compliance or trustee fees)
- Plan may offer more expensive investment options, including commissions, than your former employer’s retirement plan
- Plan may impose limitations (e.g., income distribution) or plan may be changed by employer (e.g., available investments, fees, services, providers, termination provisions)
Option 3: Roll your assets into either a Traditional or Roth IRA
Potential benefits
- Depending on the type of rollover, there may be no income tax or penalties
- You can consolidate multiple accounts into one, providing a clearer picture of your retirement assets
- Typically a broader range of investment options
- Continued opportunity for tax-deferred or tax-free growth, depending on the type of IRA.
- Continue to make contributions subject to IRS limits
- Many IRA providers offer managed accounts, which can provide professional management tailored to your investment preferences
- Ability to convert to a Roth IRA
Issues to Consider
- Access to plan-specific investments may not be available
- Cannot take a loan from an IRA
- Some IRA investments may include trading-related expenses, including commissions and fees
- May need to liquidate investments before rolling over to an IRA
- No penalty-free withdrawals prior to age 59½ (exceptions are available)
- Some investment expenses and account fees may be higher
- IRA assets generally protected by bankruptcy (state laws vary)
Option 4: Withdraw your money for a cash distribution
Potential benefits
- Immediate access to your cash
Issues to Consider
- Taxes and penalties for cash distributions can be hefty, and your savings will no longer grow tax-deferred, thus impacting whether you have enough money when you retire
- Potential 10% early withdrawal penalty may apply if you are under age 59½
- 60-day window to roll over before funds are taxed as ordinary income and could incur potential penalties