Left Your Retirement Plans with Your Ex?Employer?

According to Bureau of Labor Statistics, average person holds 11 jobs between the age of 18 and 44. Does this mean you have to juggle multiple 401(k) plans and deal with stacks of account statements? You may choose to do so, but in most scenarios, it makes practical and financial sense to rollover your retirement dollars away from your former employers.

There are four options regarding what you can do with your old employers? 401(k)s.

Option 1: Leave it with your former employer.
If your former employer?s 401(k) plan is good, you might consider keeping your investments with its plan. A good plan will have excellent investment options along with low administration fees. Usually, these two combinations are rare and there are more cost effective ways manage your retirement dollars by transferring your 401(k) account into another retirement account without being subject to unnecessary taxes or withdrawal penalties. But if leaving your 401(k) with your old employer is the best option, your account needs to meet the minimum balance for the plan.

Option 2: Cash out your 401(k)
This is should be the last resort and really should not even be an option. As mentioned in Option 1, you do not want to deal with unnecessary taxes or withdrawal penalties. The employer is required to withhold 20% of the account balance for IRS and if you are younger than age 59?, there will be a 10% early withdrawal penalty. Simply put, do not take this route unless you really need that cash.

Option 3: Rollover into current employer?s 401(k) plan.
If your current employer offers a 401(k) plan that allows you to rollover your old 401(k)s into the plan, you might consider this option. Your decision should largely be based on investment options of the new plan. But just as with your former employers? 401(k)s, usually the investment choices are limited and you will find better options by rolling into an Individual Retirement Account (IRA).

Option 4: Rollover into your own IRA
Rolling funds into an IRA will probably be the best option when it comes to diversifying your portfolio, as you will not be limited to fund choices that are offered by the 401(k) sponsor. IRAs almost always have more investment options than 401(k)s. IRA investments can include individual stocks, bonds and mutual funds while majority of the 401(k) plans are structured only with mutual funds. If you would like to have full control of investment options, this will be the best option for you.

These descriptions are just overviews of each option and depending on your situation, various items can lead to what would be the best choice for you. Please consult with a professional before making any transactions and know that you can always contact Bright Financial Ideas with your questions!

Tagged as: 401k, Benefits, Bonds, Bright Financial Ideas, Company Benefits, Employer Sponsored Benefits, Employer Sponsored Retirement, Investments, IRA, Jeff J. Kim, Mutual Funds, Roth IRA, Stocks, Traditional IRA, Work Benefits

Source: http://www.brightfinancialideas.com/2012/08/21/left-your-retirement-plans-with-your-ex-employer/

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