New Job? What Should You Do With Your Old 401(k)?

If you've changed jobs, or may leave your job, chances are that you have a 401(k) or other employer-sponsored retirement plan. What should you do with it?

Mar 9, 2014 at 9:00AM

The number of Americans who stay in the same job for their entire career has been steadily declining for some time now.

Most people will have several employers throughout their career, and that means having extra retirement accounts lying around. The basic options are to keep the money in your former employer's plan, roll it over into a self-directed IRA, or to cash out. Which is best for you?

Why not just leave the money where it is?
While it's not necessarily a bad choice, leaving the money in your former employer's plan eliminates options. Generally, employer-sponsored retirement plans offer a list of funds to choose from, and usually include things like various U.S. stock index funds, bond funds, and global funds. The employee is then allowed to designate the percentage of their account that they want allocated to each fund.

The main reason in favor of leaving the money alone is that it's the easiest option. Through no effort on your part, your invested money (hopefully) grows until you reach retirement age. However, if your goal is to maximize returns, the next option may be the way to go.

Roll it over
Within a few months after leaving employment, you should have the option to roll your account over into an IRA at a financial institute of your choosing. The brokerage that runs your employer's plan usually won't advertise this option of course; they want you to leave it with them and generate fees and commissions, so you may need to take some initiative and call your account representative.

The best reason for rolling your money over is the sheer amount of investment options it creates.  You can buy individual stocks, mutual funds, bonds, and even futures and options in many cases. If you see a good opportunity in the market, you are free to take full advantage. Another perk is that many brokerages offer incentives such as free trades or even free money to roll over your account.

Take the money and run?
It may be tempting to cash out your 401(k), but this is rarely a good option. You will almost certainly get hit with some kind of early withdrawal penalty, not to mention the tax hit you'll suffer as a result of cashing out early.

I say that it is "rarely" a good option, because there are some hardship situations where it is OK to withdraw from your retirement account that can be done tax- and penalty-free.

Of course, if you eventually find yourself in a personal financial crisis and needing the money, it is always nice to know that it is there as a safety net, just in case.

So, which is right for you?
The first two options are the best choices for the vast majority of circumstances. If you enjoy following the markets, researching investments, and having the freedom to choose exactly how your money is being put to work, rolling over into a self-directed IRA will provide you with the most potential for profits. If you'd rather not be bothered with it, and are content just letting your money grow along with various stock and bond indices, there is absolutely nothing wrong with leaving your account where it is as long as your employer allows it.

The most important thing that works in your favor when investing for retirement is time. In other words, the longer you leave your money invested, the more that should be there when all is said and done. Don't cash out unless you absolutely need to, and you'll thank yourself when you're ready to leave the working world for good.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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