How to Deal with 401 (k) when You Switch Jobs?

In the modern workplace, more and more people switch jobs frequently. Job-hopping because the salary are better, so if you are successful in the job-jump, then congratulations to you! But there are many things to consider, one of the most important is: how to deal with 401 (k)? And many surveys have shown that many people simply don't know their rights as employees and what their options are.

Generally speaking, after employer changed, you have four options for 401 (k), the first three will not bring the problem of fines:

1. Leave 401 (k) with the former employer (which can be re-transferred afterwards).

2. Transfer the money to an IRA(individual retirement account) , after which you can transfer it to a new 401 (k) account.

3. Transfer 401 (k) to a new employer.

4. Take the money out (Not recommended).

Leave 401 (k) to your former employer

The vast majority, but not all, of employees who leave are allowed to keep a 401 (k) account, but there is usually a minimum requirement that a certain amount of money be included in the account or it will be automatically transferred to an IRA.

If you have preferred 401 (k) investment plan in the previous company, and a number of companies, especially large companies, would offer 401 (k) holders a mutual fund or a low-priced index fund for a professional investment agency only, leaving 401 (k) where you were, you can continue with your original investment. This is a good choice when you don't know the new company 401 (k) and what to do.

On the other hand, if you keep your 401 (k) account with your former employer, there will be certain restrictions in the future, such as that you may not be able to phase it up and you have to withdraw it all.

Also note that we all know that many companies have matching benefits for 401 (k), which is how much money you put in it and how much money the company will save. However, the money doesn't necessarily belong to you when you leave, and the timing of your departure is sometimes very important, as we'll talk about in the next article.

Transfer the money into an IRA

IRA can be created by banks or brokerage firms, to make more comparisons before creating, because the cost can be in huge difference.

Compared to 401 (k), the IRA's requirements for withdrawal are lower, even if they are under 59.5 years of age, they can still withdraw money from the IRA without being fined if they need the money for reasons such as first-time home purchase or higher education. In addition, there are generally more investment options in IRA than in 401 (k), and you can make more investments without paying taxes.

But the IRA has some limitations. If your account is a traditional IRA instead of a Roth IRA, once you're 70.5 years old, you'll have to take an annual minimum each year, whether you're at work or not.

Transfer 401 (k) to a new employer

Before choosing this approach, be sure to carefully study the new employer's 401 (k) plan rules and investment options to determine that it is good for you and that the investment will be profitable. After the decision, you can contact the new company's HR, ask for a description of the transfer account, and then contact the old owner's HR, ask to transfer the account.

One thing to note is that when you transfer your account, remember to select the "direct rollover" option. If you choose the "indirect rollover" option and don't transfer all your money within 60 days, you'll have to pay income tax for the amount you haven't turned over, and if you're under 59.5, you'll have to pay a 10% fine.