When you part ways with your employer, you have a few options for your old 401(k). If it contains more than $7,000, you can simply leave those assets where they are—just don't forget about them. Or you could cash out your account—but if you're under age 59 ½, you'll need to pay a 10% early withdrawal penalty.

Rolling over your 401(k) plan may be a better idea. If you've decided to go the rollover route, you have two options: roll it over to another employer-sponsored plan, such as another 401(k), or roll it over to an 澳洲幸运5官方开奖结果体彩网:individual reti﷽rement account (IRA).

Getting started is somewhat straightforward. You just need to follow these five ste♉ps.

1. Choose Between Your New Employer's Plan and an IRA

Your first step is deciding where to roll over your 401(k): to your new employer's plan, or to an IRA.

Rolling your old 401(k) to your new employer's plan—whether it's a 401(k) or other workplace plan, such as a 403(b)—gives you a one-stop experience when managing your retirement funds. (Note, however, that your new employer's plan must accept rollovers. Not all do.) A workplace plan also has a higher contribution limit than an IRA does—though a rollover doesn't count as a contribution, and is thus exempt from these limits. Still, the difference is substantial: $23,000 in 2024 for a 401(k) vs. $7,000 for an IRA, unless you're 50 or older. In that case, you can contribute an additional $7,500 or $1,000, respectively. (For 2023, those numbers were $22,500 and $6,500, respectively. The over-50 澳洲幸运5官方开奖结果体彩网:catch-up contribution rule is the same for 2024 and 2023: $7,500 for a 401(k), and $1,000 for an IRA.

On the other hand, an IRA can pro🍬vide you with more investment options, lower investment fees, and, essentially, more control over your money.

It's not an easy choice, so take your time with this one.

2. Choose Between a Roth and a Traditional Plan, If O🍌ffer♔ed

Deciding between a Roth and a traditional account ⛦comes down to the timing of taxation: do you🐲 want to pay taxes now (as with a Roth), in order to access tax-free withdrawals in retirement, or later (as with a traditional account), in order to access a tax break now?

It's possible you won't have the option with your new employer. Some employers offer 澳洲幸运5官方开奖结果体彩网:designated Roth accounts, such as 澳洲幸运5官方开奖结果体彩网:Roth 401(k)s or Roth 403(b)s, but some don't.

You might instead roll your 401(k) into either a Roth IRA or a traditional IRA.

The table below shows the major differences between the𒅌 two🌼 types of accounts.

Sources: Internal Revenue Service

The rule that you could not contribute past age 70½ was repealed by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The SECURE Act of 2019 changed the age at which you must take required minimum distributions (RMDs), from 70½ to age 72, which was raised again to age 73 beginning in 2023 and age 75 beginning in 2033.

If you want to roll your traditional 401(k) money into a Roth account, you’ll have to do a 澳洲幸运5官方开奖结果体彩网:Roth conversion. Contributions to a traditional 401(k)༒ are untaxed,🧸 while Roth contributions are taxed. So you’ll have a tax bill to pay when you switch over. With a Roth 401(k), the rollover is easier: you've already paid taxes on that money, so you won't need to do so again.

Rolling your traditional 401(k) account into a traditional account does not require a conversion process or an income tax payment.

3. Open the Account

If you're opening an account with your new employer, reach out to your new 澳洲幸运5官方开奖结果体彩网:human resources department for guiℱ🔜dance. They can walk you through this process.

If you've chosen to go with an IRA and you already have an IRA account, you can skip this step. If you want to open a different type of IRA, use a different provider, or avoid commingling funds, here’s what you need to do.

Choose the provider (brokerage) where you want to open your new Roth or traditio♍nal IRA and make sure it accep🍒ts 401(k) rollovers (it probably does). Open an account online or by phone. 

If you prefer investments from a certain provider such as Fidelity, Vanguard, or Schwab mutual funds, you might want to open your account with one of those firms to get commission-free trades on those products. If you make lots of trades, look for a brokerage with low commissions. If you want a hands-off approach, open your account with a 澳洲幸运5官方开奖结果体彩网:robo-advisor.

4. Request a Direct Rollꦇover From Your 401(k) Plan Administrator

There’s 澳洲幸运5官方开奖结果体彩网:more than one way to do a rollover, but a 澳洲幸运5官方开奖结果体彩网:direct rollover is by far the simplest and will help you 澳洲幸运5官方开奖结果体彩网:avoid mistakes. Your 401(k) plan administrator will send a check for your account balance dirꦇectly to your new provider, who will deposit the money in your account. You won’t have to worry about penalties or unintended tax bills. Plus, you’ll only have to pay ordinary income taxes if you’re doing a Roth conversion.

An indirect rollover is defined as a transfer between tax-deferred accounts in which the owner actually receives the funds and must personally deposit the proceeds into the new account. If the person takes possession of this type of distribution, they often have 60 days to contribute the funds to a new account before being assessed income taxes or penalties. To avoid any risk in this situation, it's often heavily advised to pursue direct rollovers when possible.

5. Decide How to Invest Your Money

Opening your rollover account with a traditional brokerage will allow you to choose your own portfolio of diversified, low-cost investments and decide how much of your money to allocate to each. You’ll be responsible for your own 澳洲幸运5官方开奖结果体彩网:portfolio rebalancing, and when you make contributions, you’ll need to allocate those to new or exౠisting investments.

To decide what to invest in, consider your personal 澳洲幸运5官方开奖结果体彩网:risk profile and 澳洲幸运5官方开奖结果体彩网:risk tolerance. This includes your willingness to pursue portfolio growth at the ex🍒pense of incurring investment losses.

Letting your money sit in a 澳洲幸运5官方开奖结果体彩网:money market account, for example, means it probably won’t grow as much as you need it to. It may even lose money over time because of 澳洲幸运5官方开奖结果体彩网:inflation. On the other h๊and, this risk-averse strategy has a higher chance of preserving your retirement bala🐠nce, an important distinction for those close to retirement age.

For investors with a longer investing horizon, a common option is to invest in a 澳洲幸运5官方开奖结果体彩网:diversified mix of stocks and bonds through a low-cost S&P 500 澳洲幸运5官方开奖结果体彩网:index fund and a low-cost bond fund. Other people prefer to choose individual stocks and bonds instead of investing in funds. 

On the other hand, if you don’t have the first clue about how to assemble and manage your own portfolio, that’s fine. It used to be that the only way to get around managing your own money was to hire a financial advisor, something that was out of reach for most people because they didn’t have enough investable assets. However, with the emergence of robo-advisors, almost anyone can attain a low-cost, diversified, and professionally managed portfolio. Opening your rollover account with a robo-advisor means 澳洲幸运5官方开奖结果体彩网:an algorithm will manage ꦉyour portfolio for you after you provide your risk tolerance and your intended retirement age.

The Bottom Line

When you change jobs, you don’t necessarily need to roll over your 401(k) to your new employer's plan or to an IRA. You could cash out your balance, but if you're younger than 59 ½, you pay a 10% early withdrawal penalty. Plus you'll lose the progress you’ve made toward retirement. You could also 澳洲幸运5官方开奖结果体彩网:leave your 401(k) where it is, as long as you have a✨t least $7,000 in your account.

That said, many people end up rolling over their 401(k)—and where to, of course, is up to you. If you go with a rollover, you’ll need to make some ✅key decisions about what kin💟d of account to open, how hands-on you want to be, and how you want to invest your money.