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What To Do With Your 401k When You Change Jobs

What To Do With Your 401k When You Change Jobs

By JW Rayhons 

2020 has been full of changes! Changing jobs happens in any year, but this year you probably know more people that have changed jobs (or have been left between jobs) than usual. For anyone you know that is no longer with their previous employer, please share this with them. They will thank you. 

Changing jobs is about opportunity. And, sometimes the last thing we think about is what to do with your 401k. This is an important decision though. It’s one that has both short-term & long-term effects.  

Here are a few options to consider:

Keep it 

Some 401k (or retirement plans like 403b, 401a, 457) will allow you to keep your account right where it is. Some people will leave their 401k with previous employers for years. What you have to be aware of with this option is that any changes that previous employer makes to the plan could impact your account to. For example, if they change investment companies, your account will go with it. You may not want to leave that control to your previous employer. 

Move itOne option here is moving your 401k to an IRA in your name. This gives you full control of the account. Also, if done properly, you can avoid paying any taxes on the move. This is a common option people choose. 

A second option is moving it to your new company’s 401k plan. This also can be done without paying any taxes on the move and is a common option people choose. Choosing this option would be limited to the investments offered within the new company’s plan. 

Spend it

This is a temping one. You think, “I could pay off these credit cards” or “Let’s just get out of here for awhile and take that vacation (after COVID19)” or “it’s really not that much money, let’s just…”. BUT, spending it is a costly choice. It’s highly likely that you’ll pay taxes on the money. If you are under age 59 & ½ then it’s also likely you’ll pay a 10% penalty. This could make your total cost 30% - 40%. 

This is where most people stop thinking about costs. BUT, it’s also important to think about the long-term miss on potential growth of that account. Let’s say your 40 planning on retiring at 60; you’re thinking about taking the $50,000 out of your 401k; that $50,000 would probably double at least twice in the 20 years until you retire (meaning that $50k could be close to $200,000 by the time you’re 60). So using that $50k now (that really becomes only $32,500 after taxes & penalties) has an opportunity cost of another $150,000 (and that’s probably conservative). If you’re younger than 40 the opportunity cost is even higher. 

Look to a Financial Advisor for Help

Just because “Move it” looks like the best option, doesn’t mean that it is for you. One of the smartest things you can do when you are making a job change is visit with a professional advisor. Find one you trust. They will help you see which option is best for your overall situation. You don’t have to make this decision on your own. 


There’s more to life than money! The Rayhons Financial family are professionals that want to help you. Connect with us for an initial conversation, call us at (480) 507-2425 or contact us online. We’d love to meet you.       

 The content in this article was prepared by the article’s author. Cetera Advisor Networks, LLC does not endorse its content, and the views expressed may not necessarily reflect those held by Cetera Advisor Networks, LLC.