I've been getting a lot of questions this year about what "What Happens to Your 401k When You Leave Your Job?" With what we've been experiencing over the past couple years and the "Great Resignation" it's not too surprising. Employees are reevaluated their work/life balance and many have changed jobs due to this.
When an employee leaves a company, they have serval options available regarding their account balance. Below are a few options available to you.
Leave the 401k Account Balance with the Former Employer: Many 401k plans allow former employees to leave their funds in the plan even after they've left the company. This option is especially common if the account balance is above a certain minimum threshold ($5,000 for 2023 and increases to $7,000 after 2024). If under this amount, you’ll have to select another option or have the possibility of their balance forced-out as a taxable distribution.
Roll Over the 401k Balance into Your New Employer's Plan: If are changing employers and your new job offers a 401k, you can transfer the funds from the old 401k into your new employer's plan after meeting eligibly requirements for the new plan. Some good questions to ask your new company when thinking about rolling over your account balance are:
Does the plan allow plan rollovers? Most plans do.
To get a list of the available investment options for you to choose from.
And to request and review the plan’s fee statement (also known as an Employee Fee Disclosure - 404(a)(5) Statement)
Roll Over the 401k into an Individual Retirement Account (IRA): You could rollover their balance into an IRA Account you already have or establish a new one. IFS can help either way.
Take a Distribution: If you are close to retirement, you may choose to take a distribution. Remember the amount taken as a distribution will be reported as taxable to the IRS in the year taken. If you are under 59 ½, an additional 10% Penalty will also be associated over and above the taxable amount. *some exceptions may apply.
If you're thinking about taking a distribution remember it is almost always more beneficial for you to roll over your 401k balance to your new employer’s retirement plan or an IRA. Remember that any distribution will be reportable as the taxable distribution and may put you into a higher tax bracket.
Give us a call today (480) 634-1111 or email us at firstname.lastname@example.org for information on how we can help you.