Speaker 1: Switching from one job to the next let's walk through how to make sure your 401k does not fall through the cracks
Speaker 1: When leaving a job behind. Remember not to also ditch that 401k. If your previous company provided you with this retirement savings plan, a 401k, a four, three B, or something like that, your entitled to keep that nest egg after you leave and you have options. One option is to cash it out, take some, or all the money out of the retirement savings plan. [00:00:30] Or you can do option two, which is do nothing. And leave that money sitting in the same account where it's been all this time. Finally, there is option number three, which lets you roll over the retirement savings into a new 401k with your new employer or into an individual retirement account or IRA at a bank. Let's look a little bit closer. Each of these options to figure out which might be the right money move for you. Option one is to cash out that [00:01:00] 401k and I am going to be very honest with you.
Speaker 1: This is my least favorite money move because when you cash out, you're failing to let your investments continue to grow in the account. They miss out on so much compound growth over the years. And if you've yet to reach a 59 and a half years old cashing out now means facing an early withdrawal penalty of percent. You add that to the taxes that you're gonna pay cashing out early. Well, that could also add up to as much as 40 to 50% [00:01:30] of the account's value unless you have serious financial circumstances like needing to pay for urgent medical expenses or keeping the roof over your head, try your best to avoid this option in cashing out your 401k, maybe instead consider option two, which is to do nothing. Now in this scenario, what happens is you leave your retirement fund parked with the same plan sponsor.
Speaker 1: Let's say it's fidelity or T I a, or the like your money continues to [00:02:00] stay invested in the plan. Just know that if you go with this route, you can no longer contribute to this particular retirement account. It just sits idle and watch out for fees. Some retirement plans charge a monthly or annual maintenance fee for those accounts that stay put, even though you, the investor is no longer with the company, doing nothing is best. If you leave your company and you don't have another or 401k lined up at a new job yet, or you simply wanna take time to review your options, maybe you wanna [00:02:30] speak with a financial advisor and then decide very important. This option is only available to those with a minimum amount in their 401k, usually around $5,000. If you have less than that amount and you let the plan sit idle for several months, you may be required to roll it over to either a new 401k or an individual retirement account by a deadline.
Speaker 1: Otherwise you risk. If that plan provider is gonna close the account and send you a check in the mail with the remaining [00:03:00] balance. And we're back now to the first option, which is cashing out, which we discovered is not ideal because you're going to miss out on so much money. You're gonna pay taxes early penalty, always very important to checking with your HR team, to understand how this may play out. If you let the money sit. And finally, I saved my personal favorite for the fair end. It is rolling over the account to either a new 401k or a similar employer sponsored account. This [00:03:30] option provides the benefits of being able to continue to invest in the account. The ability to streamline your investments under one roof, which makes keeping apps on your money, that much simpler and that much more convenient. And there's no penalty or taxes.
Speaker 1: When you do a direct rollover. Now to do this, just reach out to the company that's been managing your previous 401k, let them know that you wanna do. What's called a direct rollover of the account to a new 401k or IRA. You provide your new account [00:04:00] number, some other identifying information. It's that simple, but very important that you request what is called. This is the term a direct rollover, because that means your money will get transferred directly over. There's no check arriving in your mailbox in which case that would be a technical withdrawal and you'd have to pay the taxes and the fees. So whenever possible, consider option three and continue to build on your investments no matter where your [00:04:30] career takes you. If you like this video, be sure to subscribe. And if you have any 401k questions, make sure to drop them in the comment section below for CNET. I'm far to Robbie.
