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Profitt Report: What happens to your 401(k) when you leave your job

Photo credit: MGN

When you quit your job, there are often loose ends to tie up before you go: probably a final paycheck, closing out your projects, but what about your company 401(k)?

The money you’ve been putting into a 401(k) plan is yours, meaning your ex-employer can’t touch it. However, what you do next is your move and it’ll have an impact on your finances down the road.

We checked in with Bob Wright at Complete Wealth Advisors in Flint Township and he explained, you have four options. First, you could take the money.

“Cashing out your 401(k) every time you change jobs is kind of like planting a garden and then ripping everything out every other weekend and starting all over again,” Wright said.

If you aren’t of retirement age, you’ll be paying income taxes plus a 10 percent penalty, so this isn’t Wright’s ideal option.

Your second choice: leave the money right where it is.

“If you leave money in a company’s 401(k), you don't have to worry that company is ever going to get your money, it's not their money, it's your money,” Wright said.

However, there are some caveats to this option.

“If you have less than $1,000 in the plan when you leave, they can cash you out forcibly,” Wright said.

If you have $1,000-5,000, it’s up to your ex-employer. They could leave it where it is or they could roll it into an IRA account. If there’s more than $5,000, they can’t move it.

“Most people will take money out of their old 401(k)s just for simplicity sake, I want to have one statement instead of three,” Wright said, which is also your third option. You could roll money from your previous employer’s 401(k) to your new employer’s plan.

Last, you could roll the money into a traditional or a Roth IRA. Reasons for choosing an IRA over a 401(k) are complex but to keep it simple, an IRA is more of a do-it-yourself kind of investing.

“Investment flexibility is a primary reason,” Wright said.

So – what’s the best option for you? That is completely dependent on your financial situation.

The Profitt Report wants to hear from you - please send consumer questions and story ideas to ProfittReport@WSMH.com

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