Old 401k? What to do? Your Options in a Nutshell

There are many misconceptions about what must be done with a Profit Sharing Plans when someone leaves a company. Some people think they have to cash out their retirement upon leaving a job. Others think they must “roll it over” into a new plan. Still others believe that they must leave the plan where it is. None of these are true, and none are false. These aren’t “musts”, they are options. The big question is: which option is the right option for you?

Option 1: Leave your money in the current plan.

This isn’t the best option for most investors, because once your job has been terminated, so have your benefits that come from participating in a Profit Sharing Plan or similar retirement plan. No longer can you contribute, or benefit from employer matching. Often times out-of-sight means out-of-mind, not the management you want for your most valuable retirement asset. In addition, the annual fees being charged can be more expensive than options 2 or 3 listed below. Consult a financial professional for more questions about this option.

Option 2: “Roll it over” into a new employment plan at your current employer.

For most investors, this is a better option than option 1; however, it continues to come at a cost for the investor. The rollover amount cannot participate in employer matching, and the fees charged at the new 401(k) plan might cost more than options 1 or 3 shown here. In addition, most 401(k) plans offer only about 30 investment choices and limited customer services in their plan. Because it isn’t uncommon for rollovers to be a substantial amount of money, you might not get the diversification or customer service needed for such a large retirement nest egg.

Option 3: “Rollover” your old plan into a Traditional IRA account with no tax consequences.

For most investors this is the best option because outside investment firms are much more completive than most employer sponsored plans. By having a traditional IRA you have many more and better investment options made available to you, not just the 30 or so offered by your current plan. In addition, retirement plan costs are often cheaper, which results in a better bottom line for your portfolio. Customer service depends greatly on the firm you choose, so make sure to find a financial professional and firm you trust and want to work diligently with.

When you’re ready to move your Profit Sharing Plan or similar retirement plan, I encourage you to contact me. As an independent financial advisor with no corporate ties or sales quotas, I will take the time to educate you on your personal options. My customer service is impeccable as you will come to find during our relationship. It’s your money; make sure it’s at the right place!

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