Don’t forget about your 401(k) when you change jobs. If you have a retirement plan housed with your old employer, you don’t have to leave it there. You have a few options that allow you to continue invest old 401(k) funds when you find new employment. This article outlines those options and explains different ways you can continue to build retirement wealth no matter where you work.
Ways to Invest Old 401(k) Funds When You Change Jobs
When you leave a job that offered retirement benefits, you must decide how you want to invest your 401(k) funds housed with your previous employer. You have some choices to make to maintain the stability and wealth-building potential of those hard-earned retirement savings.
First, you must decide if you want to:
- keep the funds with your old employer’s plan
- move the funds to your new employer’s plan if they offer one
- roll the funds over to a traditional or Roth IRA with an independent IRA services provider
If you choose to keep the funds with your previous employer, understand the drawbacks—you have no control over the investments for your account. And you won’t enjoy employer matching contributions to your old 401(k) funds anymore if your old employer offered that benefit.
Moving old 401(k) funds to your new employer’s plan allows you to take advantage of employer matches, but you still don’t have much input as to investments for the account.
Rolling the funds over to an individual traditional or Roth IRA is advantageous if your new employer doesn’t offer benefits.
You can also roll funds over to a solo 401(k) if your new job is self-employment. The sub-contractor industry has grown tremendously over the past few years. Solo-k plans give you the opportunity to reap much of the same retirement benefits and rewards as typical accounts offered by larger employers.
Individual plans present a significant bonus if you choose to use a self-directed retirement plan.
What Is a Self-Directed Retirement Plan?
Self-directed retirement plans work the same way conventional plans do with one exception: plan owners can invest in alternative assets that they choose themselves. They don’t rely on third-party administrators or brokers to choose investments for them.
And this opens the door to a whole new world of alternative investments to the stock market, bonds, and mutual funds.
You can rollover funds from a 401(k) from a job you left recently and even from an old employer if you left your retirement plan in place there when you changed jobs years ago.
Imagine the ability to invest in alternative assets that include:
- real estate
- IRA LLCs
- private equity
- multifamily syndications
- sustainable assets
- private lending
- and much more…
Sometimes, these investments, especially real estate, can earn returns at a faster pace than traditional stocks, bonds, and mutual funds. Plus, you have control over your investments, and you can invest at a pace you’re comfortable with…every single day.
How to Rollover Old 401(k) Funds into a New Account
If you decide to move your retirement funds from your old employer to a new account, there are two options: direct and indirect rollovers, which work for moving funds into conventional and self-directed accounts.
- Direct rollover: This allows your old employer’s plan custodian or administrator to send your funds from the old employer-sponsored plan straight into a new IRA, solo 401(k) or to a new employer-sponsored plan. Your old employer plan may have limitations on moving those funds to an IRA unless you are 59 ½ or older or have special provisions within that plan.
- Indirect rollover: In this transaction, you take possession of your funds and place them into your new qualified account. You have 60 days from your personal receipt of the funds to deposit them into your new account. If you miss that deadline, your funds may lose their tax-protected status, and you may end up paying taxes and an early-distribution penalty.
Indirect rollovers are unique transactions and not necessarily the preferred way to move funds due to potential tax implications. Also, indirect rollovers can only be performed once within a 12-month period. Consult with the proper professionals before you make this move.
Final Thoughts from Advanta IRA
If you’ve spent most of your work life contributing to and building retirement wealth in employer sponsored plans, you’ve amassed a healthy nest egg. Don’t neglect retirement funds you saved with your previous employer. Instead, make it a priority to decide how to invest old 401(k) funds moving forward to continue reaping the benefits of tax-sheltered savings to support the lifestyle you desire in retirement. With the current volatile state of the stock market and uncertain economy, choosing to self-direct and use alternative assets to continue building wealth is worthy of your consideration.
Additional reading to learn about the different self-directed plans you can use: