From
Your Perspective:
Early bird retirement investing
Moving 401(k) assets
What happens if you’ve built up a 401(k) account at one job, but you’re moving to another employer?
Another great benefit of 401(k) plans is that they’re portable,
which means you keep any money you’ve accumulated when you
leave your job. And if you worked there long enough to be vested,
you also get to keep your employer’s matched contributions.
When you leave your job, you have the option of
withdrawing all of your money from your retirement account and
spending it as you like. That might seem like a good idea if you’re
relocating for a new job, for example, and the extra cash could
cover your moving costs. But you’ll have to pay income tax
on all of the money, and there’s an additional 10% penalty
for withdrawing money before you turn 59 1/2.
A better choice is transferring the money into
your new employer’s plan. If that’s not an option,
you’ll avoid penalties and preserve your tax benefits by
putting the money into an IRA that you open on your own.
Depending on your employer, you may have to be older than 21 or have worked for at least a year before you’re eligible to open a 401(k). If that’s the case, you may want to consider opening an IRA, so that you get a jump on the tax benefits. For most young investors, a Roth IRA is the best bet, since it offers eventual tax-free income in retirement.
