Quitting and Your 401(k)
You are considering quitting your job, but you aren’t sure how to handle the funds in your employer-run 401(k) . Many opt to cash out, not realizing that doing so ensures 20 percent of your retirement savings are then lost to taxes and another 10 percent is taken as a penalty for cashing out early. With this in mind, consider the other options below that are also available to those looking to move funds out of an employer-run 401(k).
- Roll money into a new 401(k) provided by a new employer. This option is especially appealing if your new employer has a solid fund selection. More so, this option will allow you to consolidate retirement accounts and save energy trying to remember where your various funds are housed.
- Leave the 401(k) with your current employer. Before you choose this option, seriously evaluate whether you have a good fund selection with your current employer. Also keep in mind that you will not be able to add money to the account once you leave your current job.
- Turn it into an IRA. This option allows you to avoid taxes and penalties while possibly offering you a wider selection of investments.
What happens if you don’t make any decision about what to do with your 401(k)? Your employer will mail you a check for your balance with 20 percent in taxes removed. After receiving the check, you will have 60 days to find a new home for the funds. You have to both deposit the funds as well as add funds equivalent to the 20 percent tax deduction. If the account’s new balance is equivalent to the ending balance of the 401(k), the government will issue you a tax credit for the 20 percent withheld in taxes.
(Source: moneyning.com)
