And the great resignation has sent ripple effects through America
as employees jump from their old jobs to new opportunities,
better pay and that coveted improved work life ballots.
So you've got a new job. What happens next?
Well on that long to do list of new hire tasks,
nothing might be more financially important than securing your 401K.
From your old job and rolling it into your next step.
So joining me now is Kristin Myers editor in
chief of the balance of personal finance website Kristen,
thanks for coming on this show.
How should
we're happy to have you? How should consumers go about handling their four oh one K.
When they do transition to a new job?
Right?
So you essentially have four options when you do leave
your old job and go to your new employer.
So the first is essentially you can cash out all of that money
and keep in mind if you have about $5000 or less in that
401k.
Your old employer can actually decide to cash that out for
you if you don't choose to do something else with it.
And that is essentially you can just leave
the money there if your old employer allows it
and they could decide to cash that out for you,
you can roll it over into an individual retirement account like a Roth ira.
Or you could just take that money from your old
401k. And if you're new company offers you a four oh one K.
You can just take it straight from there and put it into your new four oh one K.
So you do have a couple of different options,
but not all of those options are actually good options,
depending on your circumstance.
I will say this typically cashing that money out
or just leaving it at your old employers,
four oh one K.
Are probably two of the worst options that you could do.
So you really want to make sure you roll that over into new four oh one K. Or into an ira.
So let's just walk through the basics here,
Christine the mechanics of this because it can be complicated, right?
And I think for some people,
a new process, certainly at times, so is the best way to start the process by going
to your current employer's HR department, finding out how to manage this.
Is it going to perhaps a brokerage
company like Fidelity, like Charles Schwab, for instance,
what are the steps to make this a reality?
And how much pre planning does it take before you actually
leave your old job and go to that new job?
Right.
So I would actually say you're going to actually
do some of those things at the same time.
You're going to want to check with that new brokerage, if you, for example,
have a new four oh one K.
Manager.
And you're also going to want to check with
the brokerage from your previous employer because they are going
to have different regulations and rules about what they're
actually going to let you do with that money.
Now I will say when you tend to leave your job,
they'll actually send you letters letting you know, hey you have this money in your
401k. What would you like to do with it?
And they'll actually give you some information so that
you can make some of those next steps.
It is of course ideal to sort of have this
plan in place prior to you leaving your company.
But I will say you do have a little bit of time even after you've left,
you have about 60 days.
For example, if you want to roll over from 14 oh one K. Two, the new
401k. The I. R. S.
Says you have 60 days to roll that money over without having
to pay any taxes at all because it's not a taxable event.
If it goes from 14 oh one K, I should say into a new four oh one K.
So you do have a little bit of time
and then what's the best way to manage that new ira
going forward. I know
consumers can still contribute in fact to that ira in the future.
Absolutely.
So we all know that when it comes to
Roth iras particularly they actually have these income limits.
So if you actually make over about 100 and $45,000 in a year,
you typically can actually contribute to a Roth ira at all.
The phase out has already begun.
This is an instance where that actually does not apply.
If you take that money from that
401k. And roll it over into a Roth ira.
So if you already have a brokerage account,
you can choose to open up a Roth ira account there and roll those funds there.
But if you are someone who is a little bit younger,
perhaps lazier, whether there's nothing wrong with that, you might say,
I don't want to have too many
different retirement accounts that I'm contributing to.
I'm just gonna roll that four oh one K over to a new
401k.
And that really streamlines some of your investment accounts,
making it a little bit easier for you to manage.
You have to consider, especially if you're someone younger,
you're probably going to jump jobs several different times.
So you really want to keep the amount of accounts
that you have to keep track of to a minimum.
Yeah, good advice there,
Kristin Myers editor in chief of Personal finance website.
The balance Kristin, thank you