You Lost Your Job – What do you do with Your 401k Plan?
It’s stressful to lose your job. It’s additionally stressful to have to decide what to do with your 401(k) during this time. Here are a few options to help make this decision easier.
If you’re fired or laid off, it’s your right to move money from your 401(k) account to an IRA (Individual Retirement Account) without paying income taxes. This process is called a “rollover IRA”.
If you make the decision to roll your money into an IRA, you can choose which financial institution you’d like to use. This means that you’re not required to keep your money with the company who holds your 401(k).
Although there are several different types of IRA accounts from which to choose, they all require a custodian, basically a financial institution that holds your account. There are two main types of IRA accounts: Roth IRA or a Traditional IRA. Make sure you review which type of IRA is good for your situation.
This type of retirement account lets you set aside after-tax income up to a certain amount each year. After age 59 1/2, both your earnings and withdrawals on your account are tax-free.
This type of retirement account lets your earnings grow tax-deferred. You only pay taxes on your investment gains when you withdraw money in retirement.