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March 16, 2018Retirement Savings Advice When Changing Jobs – 401k or IRA?
Let’s face it – the job you are working at today, may not be the job you are working at tomorrow. On average people change jobs 12 times over the course of their career. Many times, when they leave a job they leave their 401(k) too. However, doing that is not an avenue I would suggest most of the time. Recently a friend of mine experienced this exact transition. Here is a little about how our conversation went.
My friend took on a new job as a pharmaceutical sales rep at a new company. Excited for his new adventure, he also wanted to know how to handle the money he had accumulated in his old 401(k). As a friend, who is also a CFP®, I gave him my honest opinion on what I would do.
I told him when you leave a company, don’t leave your money there. Take your 401(k) with you.
Of course, then the question becomes, where do I put the money? When this happens you have a couple of options. You can use an IRA or you can use a 401(k) at your new company. For me, I personally like the idea of using an IRA. Many times when you choose this route it opens up better investment selections for you on the open market then what the plan sponsors or the plan administrator choose inside of a company 401(k). While that’s not always the case it is many times so as a rule of thumb, which is why I often prefer using an IRA. On the other hand, depending on your particular needs, the new 401k plan at your company may be a better option. For example, your specific financial plan may require the use of the loan provision with the 401k plan or another feature. As always, speak with your planner about the pro’s and con’s specific to you.
Once you decide where to put your money, you need to start the process of moving it. That may or may not include an advisor. Most of the time I’m going to suggest using one because if you have these questions, then you don’t know the answers and an advisor will. I especially suggest an advisor when you are larger amounts of money. The same way I would recommend a doctor to some with a heart problem, I suggest you find a trusted advisor. Lawyers hire other lawyers because they know that professionals earn their money, so use an advisor, one that is a fiduciary.
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Again there are some reasons why some people would not want to use an IRA, but in my opinion, I would move my 401(k) to an IRA. Every situation differs and you should speak with your CERTIFIED FINANCIAL PLANNER™ to help decide what steps are best for your specific situation. Honestly, I get this question a lot because people change jobs frequently these days; and whenever you do and I’m just a firm believer, that if you’ve left the job take your money with you. And hire an advisor so that you can learn how to invest. Let them teach you and you’ll be all the better for it over the next 15-20 years of your career.