June 22, 2010
When you terminate employment you have a choice to make. Do you leave your employer-sponsored retirement plan (401K, 403B, 457, etc.) with your previous employer or do you move it?
It might be tempting to take the money and run. However, if you "cash out" your plan you will probably lose a large portion of it to taxes and incur a 10% penalty (if certain conditions are not met, such as being 59 1/2 years of age or older). This is something you should avoid if possible as it can seriously impact your retirement plans.
You typically have three options to avoid taxes and penalties. You can leave your money in the existing plan, "roll" it into a new employer's plan or roll it into your own self-directed IRA. If you move monies from one tax-deferred retirement plan to a "like" vehicle (ie-401K to IRA) there is no tax implication.
Generally, rolling your monies into an IRA provides the most flexibility in terms of investment choices and distribution options. However, if you think you will need to access your monies prior to retirement and your new employer's plan has a loan option, it may be best to leave the monies in the plan. Loans are not allowed from an IRA.
Talk to your Financial Advisor to help you determine which option best suits your timeframe and important financial goals.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).