Changing Jobs? Know Your 401k Options

If you’ve lost your job, or are changing jobs, you may be wondering what to do with your 401(k) retirement plan.

What will I be entitled to?
If you leave your job, you’ll be entitled to a distribution of your vested balance. Your vested balance always includes your own contributions, and typically investment earnings on those amounts. It also includes employer contributions and earnings. Check with your plan to understand your vesting schedule.

Don’t spend it.
While this pool of dollars may look attractive, don’t spend it unless you absolutely need to. If you take a distribution, you’ll be taxed at ordinary income tax rates on the entire value of your account, except for any after-tax or Roth 401(k) contributions you’ve made. And if you’re not yet age 55, an additional 10% penalty may apply.

What about outstanding plan loans?
In general, if you have an outstanding plan loan, you’ll need to pay it back, or the outstanding balance will be taxed as if it had been distributed to you in cash. If you can’t pay the loan back before you leave, you’ll still have 60 days to roll over the amount that’s been treated as a distribution to your IRA. Of course, you’ll need to come up with the dollars from other sources.

Should I roll over to my new employer’s 401(k) plan or to an IRA?
Assuming both options are available to you, there’s no right or wrong answer to this question. You need to weigh all the factors and decide based on your own priorities.

Reasons to consider rolling over to an IRA:
You generally have more investment choices and distribution flexibility with an IRA than with an employer’s 401(k) plan. You typically may freely move your money around to various investments, and you may divide up your balance among as many of those investments as you want. Reasons to consider rolling over to your new employer’s 401(k) plan: Many employer-sponsored plans have loan provisions. If you roll over your retirement funds to a new employer’s plan, you may be able to borrow up to 50% of the amount you roll over. In contrast, you can’t borrow from an IRA—you can only access the money in an IRA by taking a distribution. However, you may also have less flexibility with investment choices if you roll over to your new employer’s plan.

Meet with a financial professional.
When changing jobs, you have choices. It’s important to meet with a financial professional to review all your options; the decision you make may have significant consequences both now and in the future.

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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2022

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the Credit Union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. UMassFive College Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to Credit Union members. CUSO Financial Services, L.P. (CFS) and its Registered Representatives do not provide tax or legal advice. Clients should always check with their tax advisor before engaging in any transaction involving IRAs or tax-advantaged investments. Before deciding whether to retain assets in an employer sponsored plan or roll over to an IRA an investor should consider various factors including, but not limited to: investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock.