Take it or Leave it?

When you leave your company due to job change or retirement, you may have a choice of how to handle your 401(k) account balance. Do you take it with you or leave it be?

Leaving your balance with your current employer is the easiest choice, but not all companies allow this option. When you are forced, or decide on your own, to empty your workplace account, you have two choices.

Lump Sum Consequences

Your first option is to do it yourself, instructing your 401(k) provider to make out a check to you, minus 20% it withholds by law for federal income taxes. This has potential consequences, even if you have plans to put the money into another retirement account, because you have to pay the 20% withheld by your provider (and file to have it refunded on next year’s return).

60-Day Rule

You must roll over any amount, including the sum withheld by your employer, within 60 days to another qualified retirement account, such as an IRA. If you don’t, you could owe a 10% early withdrawal tax penalty (if you’re under age 59 1/2), plus ordinary income tax on the amount at any age.

The Easy Choice

The easier way to move your money is to have your plan administrator make a direct rollover of the entire account balance to a new employer’s 401(k) plan, if allowed, or to a rollover IRA. In either case, there is no need to withhold taxes and you don’t have to scramble to avoid early withdrawal penalties. Talk to us to learn more.