If you’ve accrued multiple 401(k) accounts, you may be wondering about your options. While some will leave old 401(k) accounts where they are, others choose to take advantage of rollover options including transferring funds to an individual retirement account (IRA) or a 401(k) with a new employer.
Here are some rollover options to consider.
One of the most common options for rolling over a 401(k) to an IRA is converting the account to a high-interest savings account. By opening an IRA, CD, or money market, you’ll have a single account to manage, making retirement planning simpler than it would be with multiple accounts. Plus, when you roll over a 401(k) to an IRA, you will have more stability with an FDIC-insured savings structure and won’t have to worry about annual administration fees.
Consult a financial professional if you’re nearing retirement age and considering rollover options. IRAs and 401(k) accounts have distinct rules regarding penalty-free withdrawals and minimum distributions (upon reaching a certain age) that you’ll need to be aware of. Additionally, rolling a 401(k) into an IRA could be considered a taxable event.
Some people with 401(k)s through former employers will choose to leave their retirement fund as-is. By leaving your retirement funds where they are, your nest egg will be able to continue growing tax-deferred. Additionally, this option could make sense if you’ve recently been through a sudden employment change — such as a layoff — and want to take time to weigh your options.
However, this option also has some considerations to be aware of. Once you leave an employer, you will no longer be able to make contributions to your account or take out a loan on your plan. Also, you may have more limited withdrawal options once you leave the company. For example, if you wish to make a withdrawal from a 401(k) with a former employer, it’s possible you will only be able to withdraw the entire balance. Each company will have different policies regarding accounts for legacy employees, so be sure to contact your former employer if you are exploring this option.
If you’ve started a new job and your employer offers a 401(k), you may consider rolling over a legacy 401(k) into the new account. Consolidating an existing 401(k) with a new 401(k) helps your funds continue to grow in a tax-deferred retirement account while allowing you to continue making contributions and withdrawals as needed. Plus, you’ll retain access to the niche benefits of these accounts, including the ability to take out loans against your balance and retain protection from creditors.
Keep in mind that your new employer’s plan might not offer access to the same options you had with your former employer and you will need to make new alignment decisions for your funds. Furthermore, you could experience new or additional fees and transaction rules compared to your old plan. Before making a decision, make sure you understand the options, fees, and any other 401(k) rollover rules related to your new employer’s plan.
To learn more about how to save for retirement, Ask a Citizen at your nearest Citizens Bank Branch.
Disclaimer: Views expressed may not necessarily reflect those of Citizens Bank. The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.