| Hi Taylor:
I just left my old company because it was forced to downsize. Fortunately,
another opportunity came around at just the right time, but I'm wondering
what to do with my 401(k). Do I leave it with my old employer or move
it over to my new company's plan? - Nena
Hi Nena: Happy to hear the job situation worked out! These
are tough times for so many, and it's nice to hear good news about
people staying employed. 401(k)s are tricky, and your situation shines
a light on some of the reasons why. I'm going to give a broader assessment
of these accounts to help clarify my point, but I promise I'll finish
up by answering your question.
with 401(k)s. As far as retirement accounts go, these are
not my favorites. The main reasons are that there are too many
fees and they're limiting as far as what positions you can hold.
You also need to make sure you've worked the requisite years to
have 100% of matched funds vested, and if your company closes
or files bankruptcy before that time, you might lose money by
no fault of your own. Because of these factors, and all things
being equal, I'd say an IRA is a better choice.
2. Benefit of the employee match. To contradict the above
paragraph, if you have an employer matching up to 3 or 5% of your
contribution and you have every intention of staying with that
company long enough to become entirely vested, that's a nice way
to pad your retirement account. If you're able to fund a 401(k)
through pre-tax contributions and then still add money to an IRA,
even better. It's not free money because you have to stick around
to earn it, but for those who do stick around, the payments are
3. What to do when you leave. Finally, back to your question.
There's no good reason to leave your 401(k) at your old job, and
there's not a particularly good reason to roll it over to your
new company. Even if you now have an employer you love with a
matching program, you can still take that money while turning
the old 401(k) into an IRA with better investment options. A 401(k)
is a great way to get your retirement funds started, but it's
far from the pinnacle of investing.
| Whatever you
choose, make sure to fund that retirement account as much as possible.
Congrats on the new job and good luck!
Information presented is for educational purposes only and is not
an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.