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Suppose you’re switching jobs if you were furloughed because of the pandemic or you’re simply searching for greener pastures. If you have a 401(k) from your soon-to-be former employer, you must decide what to do with your retirement account when you leave. Here are your four options:
So which of these options should you choose? Here are some things to consider as you think about what to do with your 401(k) account:
Borrow the money. If you want to borrow money from your retirement account in the future, you’ll want to roll the money into another 401(k). While you can borrow money out of your 401(k), that option is not allowed with an IRA.
Take the money. When you make an early withdrawal from a retirement account, you owe income taxes on the amount of the distribution. You may also be subject to a 10% early withdrawal penalty.
Invest the money. This is why you started contributing to a 401(k) account, right? While it might be tempting to borrow or take an early distribution from your retirement account, you’ll also be depleting future earnings. So you consider whether you truly need the money now to pay for an emergency or if you’re ok leaving it alone in your 401(k).
Last updated: 10/04/2023
Hoheisel Tax & Accounting Services LLC
Po Box 41 | Lastrup, MN 56344
[javascript protected email address]
Phone: 320-468-2396
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