Have you ever wondered what happens to your 401(k) when you quit or lose your job? While 401(k) funds may not be a tangible asset, it will still exist after deciding to resign your position or have lost your job.
What happens to your old 401k when you quit a job?
There are various options for you to choose from, including leaving your account where it is. You may roll over the money from the old 401(k) into a new account with your new employer or move it into an individual retirement account (IRA). While all these are possible options, first make sure you can participate in a new type of plan. Lastly, and one we don’t often recommend is taking everything out however, there are severe tax consequences.
Should I take all my 401k funds?
We don’t recommend taking all your 401(k) funds because this is an employer-sponsored retirement account. It allows you to save a percentage of your pre-tax salary to a retirement account. These funds are invested in a range of stocks, bonds, mutual funds, and cash. It is almost like taking money out of your piggy bank for non-emergency situations. Unfortunately, many have lost their jobs with the current pandemic, and the unemployment check may not suffice for all your expenses. Remember you can borrow in certain situations without a tax penalty. If a 401(k) withdrawal is the only way that you can pay your bills without taking on costly credit card debt, do it.
What if your new employer does not offer a 401k plan?
So what happens if your new employer does not offer a 401k plan or if you’re not moving to a new employer? You can roll your 401(k) to an existing IRA or a new IRA account. When you have a 401(k) plan with your employer, you don’t get to decide what companies to invest in, but now you have full reigns to freedom to invest how you want, where you want, and in what you want!
Invest in companies that align with your values
Now that you are free to invest in companies that align with your values, consider impact investing as a choice! Click here to view a more in-depth blog-post about 401(k) rollovers into social responsible investments. Impact investing allows you to invest your money into companies, organizations, and funds with their intention to be beneficial to social or environmental issues. At Invested Interests, we make it easy for you to rollover your old 401K into a new retirement account. We work tirelessly to help our clients express their passions through their investment decisions.
Let’s say you are about ready to retire. You can begin taking qualified distributions from your 401(k) after the age of 59 ½, which means that when you decide to take out some money without paying a 10% tax penalty for early withdrawal. Whatever you decide to do with your 401(k), Invested Interests is here to help you in your strategic financial decisions and support in choosing impact investing portfolios.