Have You Kept Track of All Your 401(k) Plans?
Whether you've had one job in your career or many, you've probably participated in at least one employer-sponsored 401(k) retirement plan. As retirement draws closer, let's discuss some of the options available for what you can do with each account.
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Depending on your former employer, this may or may not be an option. If you are able to leave your account there, your funds will continue to grow tax-deferred, as they had been doing. However, it may be less convenient to manage your money if you have retirement accounts with more than one employer.
Rollover to Your Current Employer's Plan
If this is an option, the move could be relatively seamless. You'll need to talk to the plan administrator to discuss your options. We can also help you evaluate your new employer's plan before you roll the funds over to see if it offers the fund options you're seeking and that the account fees are acceptable to you.
Rollover to an IRA
This option allows your funds to compound tax-deferred, and may give you more investment options than the 401(k) plans with either your previous or current employer. If you choose a Traditional IRA, you won't pay any taxes when you roll over the money. If you roll money into a Roth IRA from a Traditional 401(k), you'll be taxed on the money going into the account, but pay no federal income taxes when you withdraw the money (after you're age 59 1/2 and have had the account open for five or more years). Money from a Roth 401(k) can be rolled into a Roth IRA tax-free.
Cash Out the Account
Cashing out a retirement plan early typically means you'll pay federal and often state taxes. And, if you are younger than age 59 1/2, you may have to pay a penalty tax, and sacrifice a substantial portion of your savings. Plus, you'll have no money left for retirement, which is the reason you started your 401(k) in the first place.
Cashing out is rarely a good choice, and we highly recommend you consult with your tax adviser before doing it.
What Are Your Next Steps?
Because there are many considerations in deciding what to do with your retirement account, let your State Farm® agent help you with all your retirement needs.
Neither State Farm nor its agents provide tax, legal or investment advice. Customers should consult their own legal, tax, or investment advisors regarding their specific circumstances.
Prior to rolling over assets from an employer-sponsored retirement plan into an IRA, it's important that customers understand their options and do a full comparison on the differences in the guarantees and protections offered by each respective type of account as well as the differences in liquidity/loans, types of investments, fees, and any potential penalties.