New job? Don’t leave your 401(k) hanging!

Congratulations on the new job! Hopefully, you’re getting all settled in and have your favorite framed photos in place. You’re likely adjusting to the new commute (unless it’s a remote position), and maybe you’ve already decided the office’s coffee isn’t exactly your favorite flavor (or are perfecting your at-home barista skills).

Now is a great time to start thinking about your next move for the 401(k) account you had with your former employer. Let’s go over all your options, along with some pros and cons, so you can make the right choice for your situation.

Stay in your former employer’s plan

Sometimes the best move is to make no move at all! Most plans allow this option if the balance is more than $5,000, but it’s a good idea to weigh the pros and cons before choosing to leave the funds where they are.

Pros:

• If your plan has a low fee, it may be a good move to stay put.
• It’s also wise to stay put if you like the investment options this plan offers.
• If you aren’t eligible to contribute in your new employer’s plan yet, it makes sense to leave your funds where they are for the time being.

Cons:

• You won’t be able to contribute to this account through payroll deductions anymore.
• You may not be allowed to do partial withdrawals from the balance and may be required to withdraw the whole balance instead.

Roll your funds over to your new employer’s plan

Assuming you’re eligible to start contributing to a retirement plan at your new employer, there are lots of pros to this move:

• You can do a nontaxable rollover, meaning you don’t have to worry about squaring up with Uncle Sam.
• Rollover fees are typically low.
• Your new 401(k) may have great investment options to offer, which would be a win.
• Combining the old funds with the new means you’ll have fewer accounts to keep track of.

Roll over to an IRA

You may also choose to roll over your funds into an individual retirement account, or IRA. We recommend talking to a trusted financial advisor to determine the best option, but there are lots of benefits to choosing the IRA approach:

• Rolling over into a self-directed IRA (like through UBT’s Online Investing) offers many investment options.
• IRAs are typically low-cost investment vehicles.
• You’ll have easier access to your funds. You can typically withdraw funds for home purchases, college tuition, or other qualifying events.

Keep in mind, your Online Investing account with UBT offers IRAs and is a great option for a rollover.

Take the cash option

To be honest, we don’t recommend this option unless you’re in an extreme financial situation. While tempting, it’s almost never a good idea. Here’s why:

• There is a 10% penalty if you’re under the age of 59½ (with few exceptions).
• Cashing out those funds means you’re taking away from your retirement savings and undoing years of hard work!

What about lower balances?

If your account has a lower balance and you opt not to roll over, often your former employer will make the decision for you, based on these guidelines:

• If your balance is between $1,000–$5,000 and you don’t do anything, your plan administrator is required to move the funds into an IRA.
• If your balance is less than $1,000, your former employer could opt to send you a lump sum distribution with taxes withheld. If this happens, you have 60 days to do a rollover into a new plan or IRA.

Key considerations to keep in mind

It’s important to consider cost and investment options when you’re moving jobs and deciding what to do with your 401(k). A 401(k) is generally going to have a lower cost to you because it isn’t managed by portfolio managers, and because it gives you access to mutual funds at a lower expense ratio.

You also need to consider your investment options and your comfort level within those options. Most 401(k)s have a certain number of investment options that are predetermined by the plan and investment professionals. Many participants lack investing experience and are fine with the limited investment options. It’s an easy, hands-off approach to investing for retirement.

There are other investors who prefer to select their own investments from the nearly infinite number of options available. For those investors, a self-directed IRA allows them to make their own investment elections. Most IRAs won’t assess a fee since the owner of the account is making the investment selections themselves. However, the mutual funds within the IRA might have higher expense ratios than what’s available in a 401(k).

Some investors don’t want to worry about investment research, selection, and allocation, and will instead opt for an account that includes pre-built professionally managed portfolios to choose from, such as an Online Investing account with UBT.

As always, we’re here to help talk you through the options for your unique financial situation, so reach out to Union Investment Management Group (UIMG) with any questions you may have about rolling over your 401(k), maximizing your retirement plan, and how to utilize Online Investing to plan for your future.