Good Morning
Good Morning

Leaving your job? 401(k) rollover advice

If you are planning to switch jobs and

If you are planning to switch jobs and you have a 401(k), you will have to decide what to do with it. Credit: Getty Images/iStockphoto/designer491

About 26% of Americans — and 33% of millennials — expect to change jobs once the pandemic ends. Add to that those who lost their jobs because of the pandemic, and millions may have to decide what to do with their old 401(k) plans. Here are three options for workers, especially those with many years to go before retirement.

Rollover into a new company’s 401(k) plan

If you change employers, a rollover into your new company’s 401(k) plan may be the easiest option. You’ll keep all the money in one place, and you may be able to access some professional advice as part of your new plan.

Rollover into a traditional IRA

If you quit or are fired but don’t find a new job, a rollover into a traditional IRA is a strong choice because you’ll still enjoy substantial tax benefits. You’ll be able to defer taxes on any gains and enjoy the tax breaks on income you stash there. Another advantage is you’re able to invest in whatever you want.

Rollover and convert to a Roth IRA

Another option is to roll over your 401(k) into a Roth IRA. The Roth IRA provides enviable tax advantages such as never paying taxes on gains when the money is withdrawn in retirement. But if you move a traditional 401(k) to a Roth IRA, you’ll be hit with taxes to compensate for the taxes you’ve deferred in the traditional 401(k). Still, this may be attractive to younger workers who haven't built up a sizable 401(k) yet, so the tax bite will be less onerous. If you have a Roth 401(k) at your old job, you can roll it over to a Roth IRA without creating extra taxes.

More news