Perhaps you were furloughed because of the pandemic or you’re simply searching for greener pastures. If you have a 401(k) from your soon-to-be former employer, you must decide what to do with it when you leave.
Here are your four options:
1. Leave the money in your previous employer’s pension plan.
2. Roll over the money to your new employer’s pension plan.
3. Roll over the money into an IRA.
4. Take the money and run.
Which is best for you? Here are some things to consider:
If you want to borrow money from your 401(k) in the future, consider rolling the funds into your new company’s plan. Sometimes former employers will not let you borrow funds if you are not currently employed by them.
This year may be the best time to make a withdrawal from a retirement account. Usually, you owe income taxes on distributions plus a 10% early withdrawal penalty. Because of the CARES Act, qualified individuals are allowed to take up to $100,000 in coronavirus-related distributions from a 401(k) in 2020 penalty free.
While it might be tempting to borrow or take an early distribution, you’ll also be depleting future earnings intended for your later years. Think about whether you truly need the money now or not.
Whatever you decide, it is always best to transfer the funds directly from one retirement account to another so the movement isn’t characterized as a distribution subject to income tax.
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