You have decided to change jobs! Congrats! God has a plan for you and following his will, always leads to great things.
Now that you have made the move you have three choices:
1. Cash-out the 401K and spend it on unnecessary items.
2. Leave the money in your previous employers plan
3. Rollover your 401K into an IRA ***The Best Option! ***
Starting with #1: NEVER CASH-OUT YOUR 401K! This is a NO NO! Do not withdraw money from your retirement! Do I have to repeat that……Do NOT cash-out your retirement fund?
If you withdraw your money in a lump sum from a previous employer’s retirement fund, you must pay taxes on the money you withdraw. On top of those taxes, your employer is required to take a 20% withholding from your lump sum, and if you are under age 59 ½, you may also be forced to pay a 10% penalty tax.
Now do you understand why it is important to NOT cash-out your 401K?
Oh, not to mention you will have to work for the rest of your life and never have the pleasure of retiring and leaving that job that you hate! And if you think Social Security will take care of your retirement…..Guess What….THINK AGAIN!
Your second option is to leave the money in your old company’s retirement fund, which isn’t the greatest ideal. Many 401k plan administrators charge record keeping and other fees to manage your account, regardless of whether you are still with the company. These fees can take a significant bite out of your return, especially if you have accounts maintained at several different employers.
Consolidating all of you old 401K accounts into an IRA is your best option and leads us to #3.
If you decide to roll it over (YAY!!!!), you may have the option of rolling your assets into
either an IRA (Individual Retirement Account) or your new employers plan. To avoid paying taxes and penalties, you should have these assets transferred directly to another
IRA custodian. This rollover will still have to be reported to the I.R.S. One
downside is that your retirement rollover cannot be rolled into a Roth IRA.
Since I am sure you have decided to rollover your 401k instead of choosing options 1 & 2. Stay tuned for information on how to roll the funds into an IRA.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give.
~William A. Ward
~William A. Ward