Personal finances

How To Prepare Your Finances Before You Quit Your Job – Forbes

Summary

Ben Curry

If you’re lucky enough to have a 401(k) account, it’s a loose end you’ll need to tie up when you leave your job.

While it might be tempting to take the money and run, that should be a last resort for nearly all retirement savers. If you’re younger than 59 ½, you’ll owe income tax on the entire balance.

If you’re younger than 55, you may also be charged a penalty equal to 10% of the amount by the IRS. And cashing out your retirement would leave you …….

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Ben Curry

If you’re lucky enough to have a 401(k) account, it’s a loose end you’ll need to tie up when you leave your job.

While it might be tempting to take the money and run, that should be a last resort for nearly all retirement savers. If you’re younger than 59 ½, you’ll owe income tax on the entire balance.

If you’re younger than 55, you may also be charged a penalty equal to 10% of the amount by the IRS. And cashing out your retirement would leave you without the funds you’ll need in your golden years.

Consider which one of these strategies makes the most sense for your situation.

Keep Your 401(k) With Your Old Employer

When you get a new job and 401(k), you might find your old plan offers better investment options than your new plan. That’s an argument for leaving it right where it is.

Most companies let former employees maintain their 401(k) accounts, even after accepting a new job. Here are a few caveats to watch out for:

  • If your 401(k) balance is less than $1,000, the company has the option to proactively close your account and write you a check for the amount.
  • If your 401(k) balance is between $1,000 and $5,000, the company may opt to set up an individual retirement account (IRA) for you and transfer your old 401(k) balance to the account.

Roll Your Old 401(k) Balance Into Your New Employer’s Plan

If you’ve found a new job that offers a 401(k), ask HR whether your new plan accepts rollovers from another 401(k) account.

Not all employers permit 401(k) rollovers, and some companies require new employees to work for a set period of time before they can enroll in the 401(k) plan.

Once you get the green light:

  • Ask your old 401(k) plan administrator to deposit your balance directly into your new 401(k) account. A direct transfer prevents you from owing taxes or missing deadlines in the rollover process.
  • If direct transfers aren’t an option, ask the old 401(k) administrator to issue you a check for the value of your account balance. You must deposit the funds into your new 401(k) plan within 60 days, or you will owe income tax on the entire balance and may even face a 10% IRS penalty for taking an early withdrawal.

Roll Your Old 401(k) Balance Into an IRA

Maybe your new employer doesn’t offer a 401(k) plan, or perhaps you want to go into business for yourself. Either way, rolling over your old 401(k) balance into an IRA is your go-to strategy.

Check out our list of the best online brokerage accounts to choose a new IRA provider, or consider a robo-advisor to manage your retirement funds …….

Source: https://www.forbes.com/advisor/personal-finance/prepare-finances-great-resignation/