You’ve changed jobs — congrats! As you settle into your new role, you’ll want to think about your retirement account. If you've set up a 401(k) plan at a previous job, you'll want to initiate a 401(k) rollover, which will transfer the balance of your current retirement plan into a new one. You may want to explore other options for rolling over your 401(k) to help you meet your financial goals. 401(k) rollovers aren’t complicated, but there are a few actions you can take to make the process easier.
1. Decide Where to Transfer Your 401(k) Rollover
There are several places you can directly transfer a 401(k) fund. Transferring from one 401(k) to another is one option. You can also roll your 401(k) into a Roth IRA or traditional IRA. Always ask for a “direct rollover,” which ensures that your plan sends the check to your new account, not to you. Another option to consider is moving the money into an annuity.
Initiating a rollover from your current 401(k) into a new account is as simple as completing the right paperwork. Be sure to ask your financial advisor or benefits administrator for instructions on how to do so. Opening a new 401(k) can keep your retirement savings in one account, rather than spread across many.
Or you could put your 401(k) into an IRA. Both traditional and Roth IRAs offer a wider variety of investment options and the possibility of lower fees. A traditional IRA will transfer your current tax-deferred funds in tax-deferred status. Transferring funds into a Roth IRA, however, will trigger taxes, because Roth accounts are funded using after-tax dollars. Funds in a Roth IRA grow tax-free and won’t be taxed on withdrawal, provided you wait until at least age 59 1/2.
An annuity is another tool that can house your retirement dollars until you’re ready to begin using them. One of the big perks of annuities is the option to receive income for life. As with an IRA, you’ll need to wait until age 59 ½ to begin taking payments or you’ll be charged a penalty. Your Farm Bureau agent can help you understand how this option might fit into your overall retirement plans.
2. Find Out if Your Employer Offers a Retirement Fund
You’ll also want to find out if your new employer offers a retirement plan. You may already know from your onboarding discussions, but if you don’t, inquire as soon as you can — some 81 percent of companies offer new hires a retirement plan. If yours does, a 401(k) rollover might be the smartest move to make. If your new employer doesn’t offer a retirement plan, consult your financial representative about some of the options discussed above.
3. Weigh the Pros and Cons of Cashing Out
You might be tempted to cash out your 401(k) to pay off debt or other expenses but try to resist. Though your retirement plan might be worth a lot, you’ll pay hefty taxes and penalties on withdrawals. On top of this, using those funds today could endanger your future retirement.
There is an exception: If you leave your job between ages 55 and 59 1/2, you could potentially access the balance without penalties. Be sure to consult your insurance agent or wealth management advisor before cashing anything out of your 401(k).
4. Assemble the Necessary Account Information
Once you’ve decided to do a 401(k) rollover into a new 401(k), IRA, or annuity, you’ll need to gather information on your accounts. You’ll need current account balances, details of the types of mutual funds in the account and account statements. These details will help you and your agent or advisor decide whether to move funds into similar accounts or accounts with new asset classes.
5. Look at the Big Picture
A job change is a great time to reassess your objectives and goals when it comes to your financial big picture. As life changes, so do your and your family’s needs and future goals. Take the time to sit down with your agent or advisor and look at how all the aspects of your financial plan fit together—including retirement, college saving, estate planning, charitable giving, and life insurance. Use the opportunity to make choices that are right for you and your family today.
6. Ask for Advice
Retirement funds can feel overwhelming. Consult your financial professionals for help. They can explain the pros and cons of taking out loans from 401(k) accounts, or how you should invest your money once your retirement fund is maxed out. When it comes to decisions that shape your retirement, it’s always better to be informed than rushed.
Making sure you’re on track for retirement is important. A new job is an exciting opportunity and you want to make sure you’re taking all your hard-earned with you when you leave. You also want to make the right decision regarding those funds, as you move forward. Your local Farm Bureau agent or advisor can help you make sense of your retirement funding options, so that when the time comes you can retire on your own terms.