Leaving a Job? What Does That Mean for Your 401(k)

June 3, 2020
Leaving a job what does that mean for your 401k, Wealth Planning

When you leave a job, whether by your own choice or because of a layoff or  furlough, you’ll want to think about what to do with your employer-sponsored  retirement account. Consider making a proactive decision, even if that  decision is choosing to leave your retirement savings in your employer’s plan.  You generally have four options for your retirement accounts.

Keep it Where it Is

Many companies will allow a former employee  to keep money in their plan and may require a  minimum balance. In general, it may not be the  most beneficial decision, especially if the plan’s investment choices are limited, and you want more  options, such as through a brokerage account. And,  given that the average U.S. worker changes jobs 12 times during his or her career, according to the  Bureau of Labor Statistics, it can be challenging  to keep track of multiple accounts. This may be a  better short-term plan, should you be laid off or  furloughed and unsure of your next move.

Move it to a New Employer’s Plan

Once you start a new job, it may make the most  sense to consolidate your retirement accounts  by moving your savings into the new employer’s  plan. By doing this, you keep the money growing  tax deferred and avoid tax penalties or income tax. Before you make this decision, make sure you  understand any plan-related costs. Also keep in  mind that you have 60 days from the date you  receive the plan distribution to roll it over to your  new employer’s plan.

Roll it Over Into an IRA

A direct rollover to a Traditional or Roth IRA is worth considering, especially if you have multiple  retirement accounts you want to consolidate. You still get the benefit of your money growing  tax deferred or tax free and, as long as you roll  it over within the 60-day deadline, you’ll avoid  penalties and either won’t pay taxes at all, or not  until you start to take distributions in retirement,  depending on your type of IRA. This type of account opens up the possibilities of what you can  invest in, from mutual funds to exchange-traded  funds to individual stocks and bonds and more. Because too much choice can be overwhelming,  your advisor will work alongside our in-house  investment team and can recommend investments  based on your risk tolerance and retirement goals.

Cash Out Your Account

Finally, you could choose to cash out of the plan,  but it’s generally not in your best interest to do  that for several reasons. If you aren’t 59½, you will pay a 10% penalty fee  for early withdrawal, in addition to owing federal  and state taxes. That being said, as a result of the  new CARES Act legislation, you can currently take  a distribution of up to $100,000 from now until  the end of 2020 without incurring the penalty fee.  You do have to pay taxes on that distribution. You  have three years to pay back the distribution and  the taxes. This option is only effective through the  end of the year as a result of the pandemic. And,  if you choose to cash out, once you take your  money out of the market, you lose the benefit of  tax- deferred growth and that could impact your  retirement savings over time.

Consider Partnering With an Advisor

Before you make a decision, it may be helpful  to talk with your wealth advisor. At Mariner  Wealth Advisors, we’re here to help ensure your  retirement investments are diversified and that  your assets are allocated in a way that lines up  with your tolerance for risk. You may find that, during this pandemic and its related severe market  swings, your tolerance for risk has changed. We’re  here to help you navigate the uncertainties of the  current markets and plan for the retirement you  envision for yourself and your family.

Sources
“What Happens to Your 401k When You Leave a Job?”
“The CARES Act Will Allow People to Use Their 401(k) Savings Penalty-Free”

This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general  economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal,  financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a  solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of  information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is  based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to  change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future  results. Consult your financial professional before making any investment decision.

The views expressed regarding IRA Rollovers are for commentary purposes only and do not take into account any individual personal, financial,  or tax considerations. It is not intended to be a solicitation to buy or sell or engage in a particular investment strategy. Before initiating a rollover,  please consult with a financial or tax professional.

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