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I Left My Job, What About My 401k?

It happens all the time.  I’ll talk with folks who think they have an old retirement plan at an old job but aren’t sure.  Or they’re sure they have a plan from an old job, but don’t know anything about it now and haven’t seen a statement in years.

Sometimes they’ve moved and haven’t updated their address with the old plan.  Sometimes they just haven’t paid attention.

I’ll talk about ways to track a lost plan another time.  Today we’re looking at your options when you leave an employer, so you won’t ever lose a plan.

The first, and least attractive option in my opinion, is to take the money and run.  Cash out.  Send me the check.  The downside is, you’ll owe taxes on the distribution and if you’re younger than 59.5 years old, another 10% penalty on top of the tax.  Not to mention, your plan will withhold 20% of your withdrawal as a prepayment of the tax you’ll owe.

You could leave the money in the plan.  But that’s the way so many plans get lost and forgotten.  So, not my top choice.  

If your current employer offers a plan, you could rollover your old plan to the new one.  That way you’ll avoid any tax and penalties and keep your money growing tax deferred.  You’ll be limited to the investment choices available in the new plan.  But you won’t likely forget about the plan, because the plan is part of the benefits package at your current job.

One strategy I’ve seen deployed quite a bit Is the Bring ‘Em Home technique.  Every time you change jobs, you rollover your old 401k to your IRA.  Your IRA becomes the home base for all the workplace plans you acquire.  Whenever you start a new job, part of your wrap up routine could be to get the rollover ball rolling.  That way, when your old employer is long gone and forgotten from your memory, your 401k isn’t.