If you are leaving your current job and have a 401k plan, you may be wondering what to do with it. The technical and logistical question of when to roll over your 401k is important, but there is also a bigger theoretical question to consider. In this episode, we’ll answer the technical and logistical question first, then move on to the bigger picture.
Before making the decision to roll over your 401k, it’s important to make sure that the last contribution has gone into the plan. This is because payroll cycles can be delayed, and you don’t want to miss any money that is still on its way to the plan. Additionally, some employers make profit sharing contributions the following year, so it’s important to keep your account open to receive everything you’re entitled to.
It’s also important to pay attention to the size of your 401k account. If the account has less than $5,000, the employer may be able to cut you a check, and you could be subject to a 10% penalty. To avoid this, make sure your account is in the safe area by having more than $5,000 in it.
Now that you’ve done your homework and figured out what other cash inflows are coming your way and how good your current plan is, you can decide what options to take advantage of. If your current plan is with one of the big, low-cost providers like Fidelity Investments, Vanguard, or Charles Schwab, you may want to stay where you are. These providers offer a lot of investment options and have low costs, so you’ll have more flexibility and options if you stay put.
On the other hand, if your current plan isn’t as good as it could be, you may want to roll it over to a better plan. This will give you more investment options, lower costs, and a feature-rich plan with Roth and other options.
In conclusion, when rolling over your 401k, it’s important to make sure that the last contribution has gone into the plan, pay attention to the size of your account, and do your homework to figure out what other cash inflows are coming your way and how good your current plan is. These steps will help you make an informed decision and ensure that you receive everything you’re entitled to.