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What To Do With Your 401K After Leaving Your Job? 401K Rollover Options - YouTube
Channel: Influential Finance
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If you're leaving, or have left your job where you聽
have a retirement account, like a 401k, you might聽聽
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be considering what to do with your 401k. Many聽
people assume that they can just leave their 401k,聽聽
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as is, but that's not always the case. Sometimes聽
depending on your balance your old employer might聽聽
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even be able to force you to cash out of the 401k聽
incurring a tax liability for you and possibly聽聽
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causing you to lose money. Before this happens you聽
know your options of what to do with your 401k,聽聽
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after you leave any job. Let's go. Hey, this聽
is Carlos with influential finance and on this聽聽
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channel, I make weekly videos to help you improve聽
your personal finances so if you're new here,聽聽
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consider subscribing. When considering what聽
to do with your 401k plan, you should first聽聽
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look at your balance, from what I've seen,聽
if you have less than $1,000 in your account,聽聽
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your old employer may be able to force you聽
to cash it out and send you a check. This is聽聽
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not recommended and should be avoided at all聽
costs. If you have between $1,000 and $5,000,聽
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your employer may still be able to force you out聽
of their plan, but you may be able to roll the聽聽
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funds over rather than withdrawing them. If you聽
have over $5,000 in your account, you may be able聽聽
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to leave it with your old employer, while that's聽
not the best option and it's not recommended,聽聽
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it can be a temporary solution while you聽
figure out your next steps with your new job.
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If you have not yet left your job, make sure聽
to find out the specifics. Before you leave, So聽聽
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what are your options with your 401k when leaving聽
your job? First, if your new employer offers a 401k聽聽
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you can rollover your old account into your聽
new employer's plan. The process is simple,聽聽
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but first you will need to find out how long you聽
must be employed with the new employer before聽聽
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you're eligible. Some employers make you wait聽
months before you're eligible. If you're eligible聽聽
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simply tell your old administrator to transfer the聽
funds over. Depending on the financial institution聽聽
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the process to do this may vary. However, most聽
financial institutions make you complete a direct聽聽
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transfer document, and they handle the rest. You聽
can also have the funds sent to you via check,聽聽
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but you must deposit them into your new 401k聽
within 60 days to avoid an early withdrawal聽聽
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penalty and tax liabilities. If you're rolling聽
your funds over and they send you a check with聽聽
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your funds, it won't count as cashing out your聽
plan, as long as you deposit the check in your new聽聽
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plan within 60 days. If your new employer doesn't聽
offer a 401k, consider opening your own IRA,聽聽
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you have limitless options when opening your own聽
account, do your research and find the broker with聽聽
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minimums that you can meet and affordable fees,聽
along with investments that you want to invest in.
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Like with a 401k rollover doing a direct transfer聽
is the safest way to rollover your funds,聽聽
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but you can also receive a check and deposit聽
the funds in your new IRA within 60 days.
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One huge advantage of rolling your funds聽
into an IRA is that typically you have more聽聽
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options when investing your money over an employer聽
sponsored 401k. This is why whenever I switch jobs,聽聽
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I always roll my funds into an IRA. While your聽
employer sponsored 401k typically offers some聽聽
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pre-selected funds for you to invest in an IRA聽
offers you the entire stock market and puts it聽聽
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at your disposal. Another option that you have聽
with your 401k is cashing it out, It's always an聽聽
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option to cash out your 401k at your old employer,聽
but it's not recommended, and should be the last聽聽
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option that you consider. If you cash out your 401k聽
you'll pay a 10% penalty for early withdrawal,聽聽
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plus any taxes if you had a traditional pre tax聽
401k. If you have a large amount of money in your聽聽
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retirement, it's probably not worth the money聽
since you lose a large percentage of it to the聽聽
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penalty and taxes, it's best to leave it until聽
you can roll it over into an IRA, or another 401k.
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Think about this for a second, if your effective聽
tax rate is 20% and you withdraw your money.聽聽
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Not only will you be charged with the 20% tax聽
rate, but also you will be charged with the 10%聽聽
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penalty. That means that if you withdraw or cash聽
out your 401k you are giving up 30% of your money,聽聽
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right off the bat. Another option you can聽
consider is leaving it with your old employer.聽聽
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If your employer allows you to leave the funds,聽
especially if you have a balance of over $5,000,聽聽
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you can consider that as an option. If you're going聽
to go with this option though, here are two things聽聽
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you should consider: Will you remember to check聽
back on your account? Very often people forget聽聽
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about old accounts and never check back on them.聽
If you think you may forget about your funds,聽聽
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you may want to consider rolling your funds into聽
another retirement account, and not leaving them聽聽
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with your old employer. And secondly, does your聽
old employer plan have really good investment聽聽
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options? Like I said previously, 401k accounts are聽
limited to the investments, offered in the plan.聽聽
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And this changes drastically from plan to plan. If聽
your old employer offers good investment options聽聽
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that you can't find anywhere else, you may聽
consider leaving your funds at your old employer.
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Personally, I've never left funds with an old聽
employers plan, and I don't recommend it, but it's聽聽
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always an option, especially temporarily while you聽
get situated at your new job. Knowing your options聽聽
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upfront will help you determine which option聽
is right for you. Don't look at how much money聽聽
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you can put in your pockets now, but rather how聽
much money you can save avoiding taxes and fees,聽聽
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and continuing to work towards your retirement聽
goal. Once you set up your new 401k or IRA,聽聽
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you will want to invest your money into some聽
mutual funds. If you want to learn more about聽聽
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mutual funds, check out this video right here.聽
That's where I'll see you in the next one. Peace.
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