Did you know that there was once a time when most American employees held on to the same job for a decade or longer? Some professionals even stayed with the same company for the entirety of their career! Economic changes within the past few decades, however, changed this reality. While regularly switching jobs can help an individual advance their career, increase earning potential, and even provide greater job satisfaction, it can also create new dilemmas for the worker. For example, changing jobs introduces the challenge of what to do with their existing 401(K) account. Should they consider taking the cash distribution, or could there be a better choice? In weighing what to do with a 401(K) when switching jobs, there are a few options you can consider. Today on the blog, we’ll examine four of them.

Consideration #1: Take the cash.
One of your options when dealing with the funds in an existing 401(K) is to cash it out and take the funds. If you choose this option, however, you’ll want to consider taxes. Cashing out a 401(K) account prior to retirement, you may end up paying a hefty amount of money in taxes and fees—which includes a 20% federal withholding tax alone.

Consideration #2: Directly roll the funds into an IRA.
Another option to consider when deciding what to do with your 401(K) account is to transfer the funds to an Individual Retirement Account (IRA). An IRA operates very similarly to a 401(K), with an added benefit—it can remain open independent of your employers! This option may be favorable if you change jobs often or if your new employer doesn’t offer a plan for retirement.

Consideration #3: Use your new employer’s retirement plan.
A third option to consider when changing jobs is to roll your existing 401(K) savings forward to your new employer. This option may be worth considering if you mostly work positions that provide ample 401(K) plans. Rolling the funds over directly from one employer to the next may also help to eliminate any fees from the IRS. It’s important to note that even if you are not yet eligible to contribute to your new employer’s retirement plan, you should have the option of rolling over your money.

Consideration #4: Keep the old plan.
If you have at least $5,000 in your old retirement account, your employer is obligated to retain your account if you wish to keep it. You will no longer be able to make contributions, but you do have the ability to make decisions regarding the investment of your existing assets. This may be a favorable option if you start your own business or simply want to add some diversity to your retirement holdings.

Final Considerations: The importance of research.
The right approach to your 401(K) account depends on several factors—the most important being your individual financial situation. In addition to the factors mentioned above, you may also want to consider speaking with a financial professional. At DCCU, Member Investment Services helps members navigate these and other important financial decisions that impact their economic future. Contact Member Investment Services today.