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Know Your 401(k) Options When Leaving Your Job

October 8, 2018

Whether changing jobs or retiring, many investors struggle with the decision about what to do with their 401(k) assets when parting ways with their employer. While everyone’s situation is unique, here’s a quick summary of your options and what to consider. With decades experience helping investors make sound financial decisions, the Foxstone team is happy to lead you through the decision-making process to select an option that makes sense for you.

Option #1: Leave Your Assets in Your Prior Employer’s 401(k) Program

While this is the easiest option since you don’t need to move anything and your assets will remain tax-deferred, many companies don’t allow departing employees to keep their assets in the plan so be sure to check to see if this is a valid option. In addition, you’ll still be restricted to the same limited set of investments options that your current 401(k) offers and likely won’t be able to make additional contributions as a former employee. You’ll also be tied financially to a company you’ve left.

Option #2: Roll Your Assets into Your New Employer’s 401(k) Plan

While this option is only available to job changers (not retirees), it’s one to consider if your new employer allows it. The advantages of this option are the ability to keep your tax-deferred retirement assets in one place and make additional tax-deferred contributions. The disadvantage of a limited set of investment options is similar to the prior option.

Option #3: Roll Your Assets into a Traditional IRA

This option works well for many investors and is one the Foxstone team suggests for many clients. You get to keep your assets tax-deferred and you often get access to a much more robust set of investment options. Many investors prefer the added flexibility and control over their retirement savings that this option provides compared to a traditional 401(k) plan.

Option #4: Take a 401(k) Distribution in Cash

While this option may seem exciting at first, there are many tax implications to consider. The money you take out of your 401(k) plan will be taxable, subject to a 20% mandatory federal withholding rate and also potentially subject to early withdrawal penalties.


We suggest consulting with an experienced financial advisor like Foxstone Financial to discuss your options in more detail and for help with the paperwork needed to implement your desired choice.

About Foxstone Financial Foxstone Financial is a Denver-based investment advisor that uses the latest artificial intelligence investment technology, decades of market experience and a network of specialized partners to serve clients that expect better than average.