What's Your Old 401(k) Plan Up To?

May 22, 2013

By Staff Writer

401upto.jpgYou packed up your office and turned off the lights when you left your last job. But you may have left something important at your former workplace: a retirement savings account.

If you participated in an employer-sponsored retirement account, a 401(k), at your previous job, you need to think about what to do with the funds.
Here are some options to consider.

  • Leave the account there. Depending on your former employer, this may or may not be an option. If you are able to let the account stay there, your funds will continue to grow tax-deferred, as they had been doing. It also may be less convenient to manage your money if you have retirement accounts with more than one employer.
  • Roll over the money to your new employer's plan. If this is an option, the move could be relatively seamless. Be sure to evaluate your new employer's plan before you roll the funds over to see if it offers the fund performance you're seeking and that the account fees are acceptable to you.
  • Roll over the money to an IRA. This option allows your funds to compound tax-deferred, and may give you more investment options than the 401(k) plans with either your previous or current employer. If you choose a traditional IRA, you won't pay any taxes when you roll over the money. If you roll money into a Roth IRA from a traditional 401(k), you'll be taxed on the money going into the account, but pay no federal income taxes when you withdraw the money (after you're age 59 and have had the account open for five or more years). Money from a Roth 401(k) can be rolled into a Roth IRA tax-free.
  • Cash out the account. Cashing out a retirement plan early typically means you'll pay federal and often state taxes, and, if you are younger than age 59 , you may have to pay a penalty tax, and sacrifice a substantial portion of your savings.

Because there are many considerations in deciding what, if anything, to do with your retirement account, talk with a financial or tax professional before you make your move. If you'll be moving your retirement account to your new employer's plan, you'll also need to talk to the plan administrator to discuss your options.

State Farm agents do not provide tax, legal or investment advice. Please consult your tax, legal or investment advisor regarding your specific circumstances.

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