Investment & Retirement Strategies
Your Guide to Retirement Strategies in Finance
When it comes to changing jobs, there’s a lot of important questions you need to ask yourself. One of them is what to do with the money in your 401(k) account. How you answer this question can determine whether you save, or lose, thousands of dollars in lower returns and taxes.
The first step that we recommend to our clients is to leave it alone. You have 60 days to decide what to do with your account, and waiting for any emotions to settle can be extremely valuable. Whether you decide to leave it in your account or roll it over, the worst thing that can be done in this 60 day period is a quick cashout. Why? because if you do cash out, the plan administrator will withhold 20% for federal income taxes. This is significant and can result in a large deduction.
In addition to the 20%, you may also have to pay local and state taxes. All things aside, you could be paying nearly half of what you have saved, which can have an incredibly negative effect on retirement and other long-term goals. That being said, we recommend non-emotional, decisive, and strategic steps through this process. Having a non-biased, experienced accountant can be extremely beneficial for multiple reasons.
One of the most seamless, pain-free options is to rollover your 401(k) into a new company’s retirement plan before your 60-day period ends. Many companies are well versed in this and can get you the forms you need quickly and easily.
Something to note: most employers do not immediately enlist you into their 401(k) plan. Rather, they require that you work for a set period of time before enrollment. If this is the case, we recommend keeping your funds in your previous employer’s plan and rolling it over as soon as the waiting period is complete – this way you avoid charges and loss of funds.
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