Pursuing new job opportunities can be a springboard toward a brighter future, but it can complicate your retirement if you have an established 401(k). While you might be tempted to take a cash disbursement to fund a relocation or vacation, the best approach is to leave the money where it is or transfer the funds to another investment vehicle. Because this choice can have a dramatic impact on your retirement, it’s best to consult an experienced accountant, who can provide more insight into your options.

What to Do With a 401(k) When Changing Jobs

Leave the Current Plan in Place

Even after you leave the company, your investments will continue to grow on a tax-deferred basis. Leaving the current 401(k) is often the safest course, since there are no taxes or penalties, and it may offer features that the new company’s retirement plan doesn’t.

Roll the Money Into an IRA

An IRA offers some potential advantages over a traditional 401(k), including expanded investment options and potentially higher growth. You may also be able to avoid tax penalties by rolling the funds directly into an IRA account, but if you take the cash withdrawal first, your employer will take the 20% tax required by law. While an accountant can help recover that money in your tax refund, most would prefer to avoid paying in the first place.

Transfer Funds Into a New 401(k)

If the new employer offers more attractive investment options, you may be able to roll the funds from the old 401(k) into the new one. This can simplify your accounting and usually won’t expose you to any financial penalties.

As a full-service team offering a range of financial services, the accountants at Lee & Smith PLLC, provide effective bookkeeping and relevant advice to investors and business owners throughout the Texarkana area. No matter what your goals may be, their team will help you achieve financial freedom. For an overview of their services, visit their website. Call (903) 832-4339 to discuss 401(k) options with an experienced accountant.