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The Four Paths for Your Old 401(k): Smart Choices for Retirement Security
Have you ever left a job and forgotten about your retirement plan? You're not alone. A staggering $1.3 trillion sits in over 25 million abandoned 401(k) accounts across America. That's literally like walking away from your paycheck when you exit the building!
Today I'm breaking down your four options for those old retirement plans, whether they're 401(k)s or 403(b)s. You can leave the money where it is (if you have over $7,000 in the account), which might work well if your former employer offered solid low-cost options. But let's be honest – out of sight often means out of mind, and these accounts frequently end up neglected.
Rolling your old plan into your current employer's 401(k) keeps everything in one place, making it easier to manage alongside your current contributions. This strategy also preserves your ability to make backdoor Roth IRA contributions if your income exceeds the normal limits. Alternatively, you could roll the funds into an IRA for potentially greater investment flexibility, though this might come with higher costs than employer plans. And while you can move traditional IRA money back into a 401(k) later, curiously, you can't do the same with Roth IRA funds.
The fourth option – cashing out – should generally be your last resort. Between regular income taxes and the 10% early withdrawal penalty, you could easily lose 25-30% of your money immediately. Imagine cashing out $50,000 while earning $75,000 – suddenly your taxable income jumps to $125,000, creating a potential tax nightmare!
When deciding what to do with your old retirement accounts, consider fees, investment options, whether you might need to access the money through loans, and the mental clarity that comes from consolidation. Don't become part of that $1.3 trillion in forgotten funds! Review your accounts annually, maintain your online access, and ensure your hard-earned retirement savings keep working for your future.
Envision Financial Planning. 5100 Poplar Avenue, Suite 2428, Memphis, TN 38137. (901) 422-7526. This communication is strictly intended for individuals residing in the United States. Advisory Services offered through Envision Financial Planning, a Registered Investment Adviser.
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By Stacey Hyde
5
33 ratings
Have you ever left a job and forgotten about your retirement plan? You're not alone. A staggering $1.3 trillion sits in over 25 million abandoned 401(k) accounts across America. That's literally like walking away from your paycheck when you exit the building!
Today I'm breaking down your four options for those old retirement plans, whether they're 401(k)s or 403(b)s. You can leave the money where it is (if you have over $7,000 in the account), which might work well if your former employer offered solid low-cost options. But let's be honest – out of sight often means out of mind, and these accounts frequently end up neglected.
Rolling your old plan into your current employer's 401(k) keeps everything in one place, making it easier to manage alongside your current contributions. This strategy also preserves your ability to make backdoor Roth IRA contributions if your income exceeds the normal limits. Alternatively, you could roll the funds into an IRA for potentially greater investment flexibility, though this might come with higher costs than employer plans. And while you can move traditional IRA money back into a 401(k) later, curiously, you can't do the same with Roth IRA funds.
The fourth option – cashing out – should generally be your last resort. Between regular income taxes and the 10% early withdrawal penalty, you could easily lose 25-30% of your money immediately. Imagine cashing out $50,000 while earning $75,000 – suddenly your taxable income jumps to $125,000, creating a potential tax nightmare!
When deciding what to do with your old retirement accounts, consider fees, investment options, whether you might need to access the money through loans, and the mental clarity that comes from consolidation. Don't become part of that $1.3 trillion in forgotten funds! Review your accounts annually, maintain your online access, and ensure your hard-earned retirement savings keep working for your future.
Envision Financial Planning. 5100 Poplar Avenue, Suite 2428, Memphis, TN 38137. (901) 422-7526. This communication is strictly intended for individuals residing in the United States. Advisory Services offered through Envision Financial Planning, a Registered Investment Adviser.