Part 3: Expert Answers for Your 401(k) Questions About Money in a Former Employer's Plan
Darla Dernovsek
Building a 401(k) account that can support your future retirement needs requires smart decisions now. In the third and final part of our 401(k) scenario series, Tom Eckert, vice president of retirement services at CUNA Mutual Group, Madison, Wis., details your 401(k) options when facing a job change.
Q: I plan to leave my job soon because my husband got a new job that requires relocating. My 401(k) contains about $83,000 that's invested in a good plan. Can I leave it with my current employer or do I have to take a lump sum payment and reinvest it? If both options are open to me, what are the pros and cons?
A: Your current 401(k) plan should permit you to leave funds in the plan as long as your account balance is more than $5,000. If you're happy with your current plan's expenses and investment options, then leaving your money in the plan makes sense.
You need to consider the trade-off you're making if you leave your money in the plan. Evaluate what you will be paying in fees and administrative costs by staying in your current plan. You'll be limited to its investment accounts and options, which you may find satisfactory. It's important to make sure that your investments are appropriately diversified to protect you during downturns and allow you to participate in a rising market.
You may come to the conclusion that your plan falls short of meeting your retirement investment goals. If that's the case, you have the option of rolling your balance over to an IRA (individual retirement account). You can confirm your distribution options by checking your employer's summary plan description (SPD). Again, take advantage of toll-free telephone consultations or online resources to learn about your options.
Check with a credit union retirement specialist about a direct rollover.
If you make the decision to roll over your account, you must follow rules to avoid unintended withdrawal penalties. Check with a credit union retirement specialist to learn more about IRAs and how to use a direct rollover of your savings to protect your investment and avoid tax penalties.
Readers should seek independent professional advice before making investment decisions.
Published October 26, 2009
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