What to do After Leaving a Job with a 401k

Leaving one job to start a new one is stressful, scary, and busy enough - you feel like you don't have the time or energy to deal with 401k stuff. But you may be losing out on valuable time your money could have been earning for you.


I have a friend (we'll call her Jenny) who left her job about 6 months ago and didn't bother to do anything with her 401k. Jenny's company automatically rolled it over to a different company who put it all in a money market fund that has been earning her around 50 cents a month and charged her a $15 annual fee.


That money could have been working so much harder for her over the past 6 months.


So there are a few different things she can do in this situation. 1) straight withdraw the money from the account, spend it, pay taxes and a penalty on it (since she is under age 59 1/2), 2) leave the money in that account with the current company but do some research and pick new investments, or 3) transfer the money to a different financial institution that she actually likes and trusts (without penalty or paying taxes, as long as it's done correctly).


Let's say Jenny chooses option 3. How does she go about getting the money to the financial company she wants? Well, it can usually be accomplished with 4 easy steps (this is just a brief overview and paperwork as well as a phone call or two may be needed).


1) Check to see if the current company needs anything from her in order to transfer the money.


2) Go to the company she wants to move the money to and start the process with them. It will usually involve opening a similar account (rollover IRA to rollover IRA OR rollover IRA to traditional IRA).


3) Once the correct account is opened and all the paperwork is done (in some cases can be done all online) the two investment firms will work together to electronically move the funds from one company to the other.


4) Once the funds are with the new firm, Jenny can pick what to invest in & hopefully start earning more than 50 cents a month!


If at any point during the process she got lost or wasn't really sure what to do next, she could simply call the customer service line of (either) financial firm and they'd be happy to walk her through the process and provide any insight she may need.


Pro tip: the firm she's moving too may be a little happier and more willing to help than the company she's leaving (it may seem like common sense but I know you got a lot going on, girl. So just wanted to give you a friendly reminder).


Look I know this stuff doesn't sound interesting or exciting but it's important. I know you want to manage your money and be in control of it. Well, you have to tell your money what to do! Like in the above example, just because Jenny's money is with a financial firm does not mean the money is actually working hard for her.


The company can only do so much and can't do a whole lot without her telling them what to do (which is a good thing by the way).


Side note:

It's totally possible to cut out the middle man and move the money directly from your 401k to an IRA with the firm of your choosing after you leave a job. You just have to file some paperwork within a certain time period.


The process is similar to the one above but this time it's called a rollover and you may need to work with your HR person (as well as your financial firm) to get the funds moved.


KEEP IN MIND:

When transferring or rolling over funds, come tax time you may need to file certain forms in order to prove the money did in fact make its way into a retirement account. Definitely speak with a tax professional for help on this.


-Madison


P.S. My 1:1 Money Coaching Program is now LIVE! Learn more.



DISCLAIMER: This is not financial or tax advice. Please consult a professional before making any investment or tax decisions. Returns are not guaranteed. Different investments result in different returns. Investing involves risk and possible loss of money. Information in this article may become outdated. Do your own due diligence before investing. Read my full disclaimer HERE.

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