What Are Your Options for Your Old 401(k)?

Did you leave your 401(k) behind at your old job? According to a U.S. Government Accountability Office (GAO) study, you have company

Lars Larsen ChFC®
Financial Planner in Burlingame, CA

What Are Your Options for Your Old 401(k)?
July 17, 2018

When you leave a 401(k) balance in a former employer’s plan, it could create complications. For example, if the employer is sold or goes out of business, you may have trouble accessing the money. If you pass away, your beneficiaries could have trouble tracking down your old balance.

If you have a balance in an old 401(k) plan, now may be the right time to take action. Below are a few options. Consider your unique needs and goals. You also may want to consult with a financial professional to help you decide on the right strategy.

Cash it out.
You can always cash out your vested balance in the old plan. You simply fill out a form, and then the plan administrator sends you a check. In fact, the plan may automatically distribute your funds if the balance is below a certain threshold.

It may be tempting to choose this option. You get a lump sum of money that you can use however you like. A lump-sum distribution can lead to dangerous consequences, though. Distributions from a 401(k) plan are taxable, so you’ll lose much of the distribution to income taxes. Also, you may face a 10 percent early withdrawal penalty if you are under age 59½.

Keep the money in the current plan.
Another option is simply to keep the money in the plan. It depends on the plan’s specific rules, but most plans allow former employees to keep their funds in place. However, doing so could make it difficult to access your funds, manage your investments or get service on the plan.

It can also be difficult to implement a cohesive retirement strategy when you have funds spread across multiple accounts. Many people have multiple 401(k) plans because they open a new one each time they change jobs. That can become unwieldy over time, especially if you change jobs often.

Roll the funds into an IRA.
Perhaps the most effective option is to roll the funds into an IRA. You simply open an IRA and then direct the 401(k) administrator to transfer the funds to your IRA custodian. When you do an IRA rollover, you avoid taxes on the distribution and the early withdrawal penalty.

IRAs are popular savings tools because they offer tax-deferred growth and a wide range of investment options. That means you can choose the allocation that best aligns with your goals and risk tolerance. You also may have access to tools that can provide guaranteed income or downside protection, such as annuities. Those kinds of options often aren’t available in 401(k) plans.

Ready to take action with your old 401(k) balance? Let’s talk about it. Contact us today at Heritage Financial North. We can help you analyze your needs and implement a strategy. Let’s connect soon and start the conversation.
Toll free 888 579 0429


Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
17700 - 2018/5/30

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