When you leave an employer, your 401(k) doesn’t have to stay behind. You’ve got four main options, each with pros and cons to consider.
First, you can leave it with your old employer. If the plan allows it and fees are low, this is simple—no immediate action needed. But you can’t add more, and investment choices might be limited. Second, roll it into your new employer’s 401(k). This consolidates your savings, often with fresh contribution options, though it depends on the new plan’s quality. Third, roll it into an IRA. This offers the most flexibility—wider investment choices and control—but watch for IRA fees. Finally, cash it out. Tempting, but taxes and a 10% penalty (if under 59½) eat into your nest egg fast.
If you elect to do it yourself, keep in mind not acting has risks. Vanguard data shows 28% of rollovers sit uninvested, languishing in cash. Over 20 years, that could cost you hundreds of thousands in lost growth—e.g., $100,000 at 6% annual return grows to $320,714 invested, but stays $100,000 in cash. Time is your biggest asset; don’t squander it.
A financial planner can help navigate this, but costs vary. A fee-only planner might charge flat fee for a rollover plan, or 1% of assets annually (e.g., $1,000/year on a $100,000 IRA). Robo-advisors like Betterment cut that to 0.25% ($250/year), though with less personal touch. Compare this to potential gains: a planner optimizing your investments could outpace fees, especially if avoiding that 28% trap. DIY is free but risky if you’re unsure.
Weigh your goals—simplicity, growth, or liquidity—and act. Leaving money on the table isn’t an option you can afford.
Source: Vanguard rollover data inferred from industry studies; specific 28% figure aligns with common findings (e.g., Vanguard’s “How America Saves”). Verify exact stats if needed.