Starting a new can be exciting and stressful at the same time There are a ton of new things to learn and a new company culture to adapt to Often, the last thing on your mind is their old 401(k) plan with the employer they just left However, it's important to know what options you have because at the end of the day, it's your money!
The first step is to know what type of 401(k) account you have (either Traditional or Roth) and what your account balance. These two factors will affect what options you have. If you can't find an old statement with the information, try reaching out to the plan administrator or your old HR manager and they should be able to point you in the right direction.
Force out
If your 401(k) has less than $5,000 in it, you may be "forced out" by your old employer. This means that your 401(k) with your old employer will be closed. If you have less than $1,000, the company may send you a check for the amount of your 401(k) balance. If you receive a check, you have 60 days to reinvest that cash into a qualified retirement account like an IRA, otherwise the entire amount will be taxed at your ordinary income level and you may receive an additional 10% penalty for withdrawing the money early. If you have more than $1,000, your old employer may auto-enroll you in an IRA.
Overall, if you have less that $5,000 and you think you may be forced out from your old plan, it's extremely important to talk with the plan administrator to prevent a taxable event. Even if the company auto-enrolls you in an IRA, you still want to find out what company the IRA is being held by, and what investment options you have.
Leave it with old employer
If you have more than $5,000 you have the option to leave your 401(k) with you old employer. This doesn't require any action on your part, but there are a few things to consider. If you keep your money in you old employer's plan, you won't be able to make additional contributions into that plan. You may also be more limited in your investment options.
This may be a good option if you find yourself extremely busy changing jobs, because it doesn't require any extra effort on your part. However, in the long run you may have more control and flexibility if you do a rollover to your new employers plan or into an IRA. Leaving it with your old employer may also give give you additional options for financial planning and tax strategies in the future.
Take a distribution
Regardless of your account type or balance, you can always take a cash distribution. This would give you immediate access to cash, however it is generally not recommended for several reasons. The first reason is that it impacts your long-term financial goals and retirement plans. The second, is that you will have to pay income taxes and a 10% penalty on the entire balance. Taking a cash distribution can help in an emergency but it can have serious tax implication, especially if you have a lot of money in your 401(k).
Rollover to new employer
If your new employer has a 401(k), you can rollover the balance of your old plan into the new one. To do this, talk with your new employer to see when you would be eligible to start their plan. This would give you access to the investments in your new employers plan and rollover your entire plan from your previous employer without tax consequences.
Rollover to Individual Retirement Account (IRA)
This option would probably give you most options and flexibility. Within an IRA, you would have access to the widest variety of investment options. It also has the benefit of being controlled by you and would allow you to get help from a Financial Advisor. Rolling over your old 401(k) into an IRA may or may not have tax implications depending on what type of 401(k) you have, and what type of IRA your moving the money into (Traditional or Roth). You may want to consider a rollover to an IRA if you think you may change jobs again in the future. An IRA is not connected to your employer and you have complete control over the account and investment options. As you change jobs, you would be able to consolidate all of you employer 401(k)s into your IRA to keep things simple and organized.
Even if you don't make a decision right away, it's important to collect some basic information to make it easier for yourself in the future. Take note of the following and keep it in a file or someplace that you'll remember:
1. Contact information of the plan administrators (who should you call if you need to update information or request transfers).
2. Plan type (Roth or traditional) and your balance and any outstanding 401(k) loans when you left.
3. Update your mailing address and other contact information so you're still receiving account statements and notifications.
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*Consult you tax advisor for more detailed information on your personal taxable situation.