Four Options With Your 401k When Changing Jobs

Last December, when I left my previous employer to start my own business, I had an important decision to make on what to do with my existing 401k.  Luckily, being a financial planner, I knew exactly what I was going to do, but many others that are not in the profession or really don’t have a good grip on their financial situation might not be as fortunate.  When changing jobs, the decision that you make to do with your 401k could be a costly one if the wrong decision is made.  It’s important to know the different options that you have on what to do with your 401k whenever you leave your current job.

Cash Out 401k

The only reason that I have this option here is because you would be surprised the amount of people I talk to that elect this option.  The most common reasoning I here, especially for 401k plans that have matching, is that it’s “The company’s money” not “theirs“.  Wow!  Isn’t that great reasoning?

By taking “The company’s money”, now that person is stuck with a 10% early withdrawal penalty plus ordinary income tax.   Typically, when you cash directly from your 401k they will hold 20% standard plus the 10% early withdrawal penalty.   Obviously, this was not the direction I was going to go. [Read more…]

401k Tips: What Not To Do

401k-signOver the weekend while attending my town’s Friday night football game, I struck up a conversation with an acquaintance of mine, and we started talking about the market. The fellow I was talking about was a believer in the market, and knew that the current crisis that we are in would eventually pass, and the market would continue to strive as it usually does. What he found most peculiar was with some of the sediments of his fellow co-workers, who were participating in the 401k. His co-worker’s belief was that with the market being as bad as they were, they were going to no longer defer to their 401k, and refrain from taking advantage of the pre-tax contributions into their retirement plan.  They were giving up free money! He was stunned by his co-worker’s remarks, and as equally as I, and compared that to a conversation that I had, with some other workers from another local employer.  It prompted me to write this blog in regards in to things you should not do when it comes to your 401k.

1. Do not stop contributing to your 401k no matter what.

Just because the markets are down does not mean you should not contribute. In fact if there was a time ever to contribute, this would be the time. The simplest reasons is that right now despite the market’s turmoils, currently the market is at a discount, and what that means is that there are a lot of great companies that exist out there, that are currently “on sale”. This is a time to buy stocks, at a cheap price in hopes to benefit from the appreciation in later years. This strategy can also be called dollar cost averaging, which means as long as you are contributing on a consistent or periodic basis, you’ll take advantage of buying shares at a lower price in down markets, and compare that to buying shares at a higher price in up markets, which should then all balance out for a dollar cost average.

If the market has you completely terrified, then consider changing all future contributions to short or intermediate bonds.  At least that way you’re money is making a little interest while the market tries to figure itself out.

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Should You Only Have a 401k?

401kAs you’ve read in other posts, I’ve talked about the importance of a 401(k) as well as a Roth IRA. Many clients have asked which one do I do over the other. A basic rule of thumb is if you do have a 401(k) that does have a match, take that first. The reason being is that that is free money and there’s no reason to pass up free money. Most 401(k)’s only match up to a certain percentage, so at least contribute as much as they match.

After the free money, Go for the tax-free money

If you have satisfied that and you still have more money to save, then let’s shift gears and let’s take a look at the Roth IRA. With the Roth IRA, you are allowed to put in up to $5,000 a year, $6,000 if you’re over the age of 50. Our goal then is to max out the Roth IRA after taking full advantage of the free match in the 401k retirement plan. Once the Roth is completely maxed out, then we come back to the 401(k) before we max that out, which is $15,500 per year up to $20,500 after over the age of 50. [Read more…]

Five Essential 401k Tips

Most 401k’s can be complex and confusing. Follow these 5 easy steps to get going towards saving for your future.

1. Start Now

If you haven’t started investing in your 401(k), do it now. The sooner you start, the longer you have to have your money grow and work for you. It comes directly out of your paycheck, so you probably won’t even notice it, so go ahead and start. [Read more…]

401k Match: Take The Money and Run


Being a financial planner for several years you think you’ve heard them all. Several years ago I was able to talk to individual who worked for a Fortune 500 manufacturing company. He was in his early 50’s and had been with the company for well over two decades. The company offered a decent pension plan and had just implemented a matching 401k about 8 years prior. [Read more…]