Virginia Beach, VA (Law Firm Newswire) September 29, 2015 – A job change can be an opportunity to improve the state of one's 401(k) plan, but it is important to avoid unnecessary fees and taxes during this process. With careful planning, many people are able to put their 401(k) into better mutual funds with lower costs after a job change.
"A job change is a great time to research your investment options and decide which type of account is best for your particular situation," said Andrew H. Hook, a Virginia financial planning attorney with Hook Law Center, with offices in Virginia Beach and northern Suffolk.
For most people, cashing out a 401(k) plan before retirement does not make financial sense. Withdrawals before the age of 55 are subject to a 10 percent early withdrawal penalty; along with income tax, this can easily eat 35 percent of the account or more. Instead, the money should either be kept in the original 401(k) plan, shifted to the 401(k) plan available through the new employer, or rolled over into an individual retirement account (IRA).
In contrast to 401(k) plans, IRAs usually offer a wider range of investment options. Although a 401(k) with very low fees may still be a prudent choice, for many people rolling the funds over into an IRA gives access to a wider range of choices, including lower cost funds.
Age should also be considered when deciding whether or not to roll over a 401(k) into another account. Although 401(k) withdrawals can normally be made from 55 years old and on without penalty, after rolling the funds into a new account, the age increases to 59 ½. People who think they may need the funds between the ages of 55 and 59 ½ may choose to keep the money in the current account.
Hook Law Center
295 Bendix Road, Suite 170
Virginia Beach, Virginia 23452-1294
5806 Harbour View Blvd.
Suffolk VA 23435