Should I Leave My Money in a 401(k) or Transfer to a Rollover IRA?

Consider your 401(k) rollover options with this guide from Citizens Bank

If you currently have 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 401(k) rollover options including transferring funds to an IRA or a 401(k) with a new employer. If you’re weighing your 401(k) rollover options, you can review your choices in this guide.

Option 1: Roll over the 401(k) to an IRA certificate of deposit (CD) or money market

One of the most common investment 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 planning for retirement simpler than it would be with multiple 401(k) 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 401(k) 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.

Option 2: Keep your 401(k) with your former employer

Some people with 401(k) accounts 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 investment 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 401(k) accounts for legacy employees, so be sure to contact your former employer if you are exploring this option.

Option 3: Roll your 401(k) over to your new employer's plan

If you’ve started a new job and your employer offers a 401(k) plan, you may want to roll 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 401(k) accounts, including the ability to take out loans against your balance and retain protection from creditors.

Keep in mind, your new employer’s plan might not offer access to the same investment 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 investment options, fees and any other 401(k) rollover rules from your new employer.

Ready to explore your 401(k) rollover options? Contact Citizens Bank today

Rolling over a 401(k) is a serious decision that is highly dependent on your individual situation. If you’re ready to learn more about your 401(k) rollover options, or have questions about 401(k) rollover rules or your retirement savings plan, contact Citizens Bank today. We’re here to help you make the right decisions to make your ideal retirement a reality.