Do I have to cash out my 401K when I change jobs?

"Flynorcal: pilot, offshore sailor, car racer and panty thief" (flynorcal)
05/26/2016 at 07:21 • Filed to: None

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Asking semi-seriously ‘cause if so, I know where the money is going

DISCUSSION (19)

vondon302 > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 07:32

No just do a roll over 401k but you can cash out if you want to and you just might want to. ;)

Stapleface > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 07:34

Nope, you don’t have to. Most plans will let you leave it in there, or roll it over if you want to and put it in a different account.

PatBateman > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 07:38

Do NOT cash out your 401k. DO, however, perform a “Direct Rollover” of the funds from the 401k into an IRA. If the funds are in a NORMAL 401k, the Direct Rollover should go into a Traditional IRA. If it’s a lesser-used Roth 401k, put it into a Roth IRA.

If you perform the DIRECT ROLLOVER (very important, because this means that the money goes from the 401k company directly to the new institution who opened the new IRA), the transaction is not a taxable event. If the 401k company sends you a check, then they automatically withhold 20% for taxes from the amount, even if you then roll the amount into an IRA yourself.

DIRECT ROLLOVER, yo.

ETA: You also have the choice of transferring the funds into a new employer’s 401k, if the situation dictates.

Sam > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 07:39

Cool car, barring the ass-ugly headlights.

Flynorcal: pilot, offshore sailor, car racer and panty thief > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 07:45

Damn. Posted this all of 15 minutes ago and I’ve already got great sounding financial advice that is all in sync across three different people. Investolopnic peeps to the rescue!

I gotta say, Oppo blows my mind sometimes. I’ve seen/given legal advice, dating advice, repair advice, career advice, financial advice, school advice... with a common thread of us all being car nuts. This is a great spot on the internet. Y’all are rad.

Flynorcal: pilot, offshore sailor, car racer and panty thief > Sam
05/26/2016 at 07:47

Felt the same when I saw the headlights. Also, check out the shifter knob in the big pic at the top. I’d feel like I was shifting a duck.

Cash Rewards > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 07:58

The three eyed glove box monster is freaking me out

Stapleface > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 08:02

As for the car itself, not really my cup of tea. I can definitely see the work that went into it, but I think the widebody kit ruins it. And why would he get rid of the flip up lights?!

Flynorcal: pilot, offshore sailor, car racer and panty thief > Cash Rewards
05/26/2016 at 08:03

Now I can’t unsee it. Wow.

Life and Times of Magoo: The People's Champ > PatBateman
05/26/2016 at 08:11

This is THE answer

Biggus Dickus (RevsBro) > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 08:16

As Bateman said, do a direct rollover. Cashing out would lead to pretty hefty tax penalties.

Thomas Donohue > PatBateman
05/26/2016 at 08:28

^^ I would only add that you should check the fund choices, and more importantly the fees, that the old and new plans offer. You may want to just keep the older plan as-is. Also, if your previous employer did any kind of company-matching, you may have to leave your money there for a few years until it vests. Your current 401K administrator should be helpful with the vesting questions.

If only EssExTee could be so grossly incandescent > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 08:29

Not necessarily, most companies have an option to consolidate 401s from previous employers.

RyanFrew > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 09:10

No! Don’t do it! Leave it in there or put it in an IRA. Don’t take the financial hit of cashing it out; that’s a common, costly mistake. There are a lot of places that you can roll it over. My personal recommendation is Charles Schwab if it’s not a particularly large sum.

You can tell a Finn but you can't tell him much > Flynorcal: pilot, offshore sailor, car racer and panty thief
05/26/2016 at 09:29

What PatBateman says with the added caveat that if you have a certain amount in your 401k you may not have to roll it over at all. Assuming you do have to roll it over you have a decent sized window before you need to do anything with it. Check with your financial institution/advisor regarding 401k rollovers. DO NOT CASH IT OUT. Either roll it into an IRA, or your new employers 401k.

PatBateman > Thomas Donohue
05/26/2016 at 09:56

Usually, when employment is terminated, all unvested funds go back to the employer. It doesn’t matter how long you keep the funds in the 401k after employment.

Also, I’ve seen either fees go up in a 401k after employment is terminated or the company mandating the funds be removed from the account. Flynorcal needs to confirm all of the above with his HR/401k provider after he leaves the firm.

In regards to the internal funds and other fees: too many people get wrapped up in the little details (.25% fee increase in a new plan/IRA or a couple of funds in the old plan being slightly better than the ones in a new plan). This is why an IRA could be a better choice, as the fees are all laid out for everyone to see, and there are MANY better fund options to invest in.

Leaving money in an old 401k is also a great way to accidentally forget about it down the road and/or not pay attention to the investments inside of it.

Thomas Donohue > PatBateman
05/26/2016 at 10:10

All good points, which is why I suggested that they check the details. In regards to the first point, ‘usually’ is not a good way to determine what happens with the matching funds. Most of the time, yes, they are gone. But I’ve seen some continue the vesting schedule, and in some cases they vest immediately based on the terms of separation. Always important to check (or at least ask) before rolling over.

If anyone thinks they will ‘forget’ about a 401k plan, then maybe the wise option there would be to cash it in and buy another car, that way you’re reminded of it every time you go in the garage!

rb1971 ARGQF+CayenneTurbo+E9+328GTS+R90S > PatBateman
05/26/2016 at 10:14

Kinja'd!!!

PatBateman > Thomas Donohue
05/26/2016 at 10:23

Don’t cash it in and buy a car. I would yell at a client of mine if they did that (I have done just that in the past). Pushing off saving for retirement will be devastating to all that partake.

And I’ve seen plenty of people forget about old 401ks, especially from early in their careers.