Changing jobs happens all the time, even when you have a set career path. After spending a couple of prime years with an employer, it is important to know how to manage the transition to a new employer-fully. This is the time you are starting fresh, and the last thing you want to do is begin a new career with a giant 401(K) sized hole. Now that you have a new office, coworkers and possibly new skills, it is time to add on a bit of responsibility to that role. Here are a few of the best ways to make the most out of a 401(K) after switching jobs.
Sometimes you don’t have to do anything. Keeping your current 401(K) right where it is has no drawbacks if you like your former employers plan. In order for this to be a useful solution, you have to meet the minimum balance requirement. Usually that is five grand, but checking for updated information is highly recommended. You don’t have to add anything to your old plan and it will still continue to grow tax-deferred through compound interest. The only drawback to this plan is that you will have two 401(K) accounts to manage; your old plan and the new one.
Rolling over an old plan into the new one used to be one of the biggest headaches in the world. Technology has played a role in making it easier, usually with online forms instead of multiple paper forms. Consolidating accounts can be done quickly, cleanly and without the help of a third party. This is of course assuming you have already looked at the pros and cons of each plan. There is no rule in place that says you have to roll over one plan into the other. In some situations it is better to keep the old plan in place due to better fees.
Rolling over an old 401(K) into an IRA is complicated, and not for the faint of heart. The option is still a worthwhile time investment if the employer offers it. IRA’s are more flexible than a 401(K) and carries with it a penalty-free distribution that is close to the retirement age. You also don’t have to deal with high fees eating into your savings due to bad 401(K) investment options. Remember, those options are preselected by the employer and may not always hold your best interest. You can use a brokerage to handle the rollover or look for a more traditional option. Just be ready for a little bit of pushback if the original setup is less than ideal.
Rushing to make a decision about your 401(K) is only going to lead to an unavoidable disaster. For many people, this plan is more important than their yearly salary. Mismanaging your 401(K) is irreversible, and wastes time or money that you may never get back. Double check whatever decision you make, make sure the information is correct, and always look at the available options on the table. You are not required to do anything with your old plan when you change jobs. Be responsible with your plan choices, and it will reward you in the present and later on down the line.
As adventurous as 401(K) prioritizing can be, it is all about playing the long game. Being smart is more advantageous than going out of your way to make moves. A 401(K) was designed with that slow, dedicated movement in mind. It is the lifeline to the tail end of your hard working life.