To roll or not to roll?

When you change jobs, you face an important financial decision regarding your retirement savings. While the circumstances surrounding your departure may be difficult it is no reason to remain idle with your retirement savings. In this situation, you have 4 options. Keep your money in your former employer’s 401K plan, roll your money into your new employer’s 401K plan, move your money into an Individual Retirement Arrangement (IRA), or cash out your old account.

To start, it is important to assess costs and investment options. Costs can prevent your account from growing or even keeping up with the market. Limited investment options can prevent an adequate allocation that fits your time horizon and risk tolerance. Second, it is important to assess the industry or career you are in. Are you in an industry where it is the standard to leave companies every so many years? If so, you may consider rolling it into an IRA so you have an account where you roll your 401K as soon as you leave and if you are in a company that does not offer a retirement package you contribute to your IRA while there. Also, consolidating your money makes it easier to manage.

Cashing out is almost never recommended and should be a final option. You will destroy your retirement nest egg and owe income taxes on the withdrawal. For most people, the best option is to move your savings into a low-cost IRA with the help of a fiduciary to assess your whole financial situation.

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