What To Do with Your 401(K) When You Change Jobs
Changing jobs often brings new responsibilities, benefits, and opportunities. But amidst the transition, it’s easy to overlook your old 401(k). What happens to it when you get a new job, and what’s the smartest move to make next?
Three Options for Your Old 401(k):
- Leave it with your former employer: This might be the easiest option, especially if the plan has low fees and solid investment choices. But not all plans are created equal, as some have limited investment options, higher costs, or minimal ongoing support.
- Roll it over to your new employer’s plan: If your new 401(k) offers better investment options or lower fees, this can be a good move. It also keeps your retirement savings consolidated in one place, which makes managing your investments much simpler.
- Roll it over to an IRA: An IRA often opens the door to a wider array of investment choices, including low-cost index funds and ETFs. It also allows for more flexibility in how you manage the money. However, an important consideration between IRAs and 401(k)s is ERISA protection.
Should You Be Thinking About ERISA Protection?
Here things can get a little more technical, but it is important. 401(k) plans are protected under ERISA, which is a federal law that shields plan assets from creditors in the event of a lawsuit or bankruptcy. Traditional and Roth IRAs do not have this same level of protection, although they do have some safeguards under state law.
So if you work in a profession where liability is a concern (think doctors, business owners, or anyone in a high-risk field), leaving your 401(k) where it is or rolling it into a new 401(k) might offer an extra layer of protection that an IRA cannot.
Evaluate Before You Act
Before you move your old 401(k), take time to:
- Compare investment options and fees between your old plan, your new plan, or an IRA.
- Consider how hands-on you want to be with your investments. An IRA being more involved, while a 401(k) plan would be less involved.
- Think about whether ERISA protection matters in your personal situation.
Your 401(k) is a key piece of your financial puzzle. With a little attention now, you can make sure it keeps working just as hard for you in your next employment chapter. Schedule a consultation with one of our advisors to explore your options and ensure your retirement strategy stays on track.
William Medcalf
Senior Financial Planning Associate, Wiser Wealth Management
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