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Job Changes and Rollover IRA’s

Whether you’re changing jobs or retiring, you’ve got a very important decision to make: What are you going to with your 401K? Technically, you have 3 options to choose from:

  • Take a lump sum payment.
  • Leave it just where it is
  • Move your funds into a rollover IRA

Each of these options has it’s pro’s and con’s, so be sure to look into the details of each before making your final decision.

Taking the Lump Sum Payment

Even though this is the most attractive option for today’s bank account, it’s the least  productive for tomorrow’s. Not only are you reducing your retirement and nest egg, you’ll be subject to a 10% penalty if you’re under the age of 59 ½..  You’ll have to pay federal taxes on your disbursement (a mandatory withholding of 20%), state taxes when April rolls around.  To sum it up, this is the worst option of the three.

Leaving Your Money Where it is

You’re familiar with the plan, and familiarity is comfortable.  The ability to borrow from your account remains the same, and your investment will continue to grow tax- deferred.  But (and this is kind of a big but) you won’t be able to stay as “in-control” of your account as with other options.  It may be difficult for you to change beneficiary information, too.  Your former employer may not have this option available for you to choose from, so be sure to check with them before you get your hopes up.

Move your Funds into a Rollover IRA

With this option, not only will your money grow tax deferred, but you will have option flexibility regarding your investment strategies and beneficiaries.  You’ll be able to invest in a wide array of products and services that just aren’t available with a 401K.  You will be better situated in managing risk and possibly yield better returns on your investments.  It’s your money and it should be working for you!

As with any decision of this magnitude, if you’re unsure of what to do, contact your financial advisor or specialist.  If you don’t have one, you’ll want to find one that doesn’t work on a commission-based salary, as it can be very difficult to feel comfortable giving your hard-earned cash to someone whose paycheck reflects what they sell to you. 

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