In November 2021, 4.5 million American workers voluntarily left their jobs, setting the record for the most departures in a single month. Since then, the so-called Great Resignation has yet to show signs of slowing. Another 4.5 million people quit their jobs in March, and another 4.4 million quit in April, according to the Bureau of Labor Statistics. And some believe the Great Resignation isn’t a temporary phenomenon but a permanent change. Job turnover is 20% higher in the remote- and hybrid-working world, and it’s is likely to stay that way, according to Gartner, a technology-research firm.
If you recently left (or are planning to leave) a job with a company that provided a 401(k) plan, you have several options.
Leaving a 401(k) Behind
Most of the time, it’s okay to leave a 401(k) plan with a former employer while you’re transitioning to a new job, says Andrew Rosen, a certified financial planner and president of Diversified LLC, in Wilmington, Del. However, don’t leave the money behind if you have less than $5,000 in your account, which could happen if you didn’t work for your former employer for very long. When the balance is less than $5,000, the company is permitted to cash out your plan. If that happens, you’ll be required to pay federal and possibly state income taxes on the balance, as well as a 10% penalty if you’re younger than 59½.&
Rolling a 401(k) to a New Employer
If your new employer allows you to roll your money into its 401(k), that may be a good option, particularly if it offers a portfolio of solid, low-cost investments. Large 401(k) plans often offer institutional-class funds that have lower fees than funds you can buy on your own. (That may also be the case with a former employer’s plan.) Plus, you can borrow from your current employer’s plan, which isn’t an option if you leave the money behind or roll it into an IRA.
If you choose to roll the money into your new employer’s plan, make sure you don’t exceed the maximum contribution you can make in a year. Company 401(k) providers are unlikely to communicate with each other and will often let account holders contribute the maximum, even if they’ve rolled over contributions from another employer’s plan. For example, suppose you’re younger than 50 and roll over a plan in which you’ve already contributed $10,000 this year. The maximum you can contribute to your new employer’s plan for the rest of the year is $10,500. If you exceed that amount, you could be subject to a penalty of up to 6% of the …….