A 401(k) rollover is when an individual transfers the contributions made to a new plan or an Individual Retirement Account. A 401(k) rollover while still employed is possible, but this depends on company policies.
Companies often require their employees to be at a certain age – mostly 55 or older – to roll over 401(k) to an IRA. If you’re about to change your job, and this is the reason why you rollover 401(k). To rollover 401(k) funds to an IRA or a new 401(k) plan while still working, the plan you have must allow you to do so.
Just like a conversion, a 401(k) rollover might not be suitable for you. We suggest contacting your plan provider to see the pros and cons along with the total cost of the rollover when still employed. Regardless of whether a 401(k) rollover is good for you financially, there are four options you can choose from.
- Let your employer’s plan have the funds
- Cash-out the account value (highly recommended if 401(k) rollover isn’t financially beneficial)
- Rollover the funds to your new employer’s plan if you’re offered a 401(k)
- Rollover to an IRA
Make sure to not leave the funds to your employer’s plan as you’ve contributed your own earnings and got a match if offered. Leaving your money to your employer would be foolish as it’s your money.
When to rollover 401(k) and contributions
If the 401(k) plan you have allows you to roll over funds while you’re still employed, you will also be able to contribute to the new plan. Contact your advisor to see if a rollover whether you’re still employed or not is going to be beneficial for you. In cases where a rollover isn’t good for you, it might be best to cash out the funds.
Generally, people want to rollover 401(k) to diversify their investment options for retirement and to take control of their retirement actions. After all, you’re tied to your employer in a way when you have a 401(k), but with IRA, you have all the rightful ownership and it’s not subject to blackout.
On the other side of the spectrum, you might want to hold off a 401(k) rollover because (a) you’re still employed, (b) you plan on early retirement, (c) you have a temporary ban on contributions, and (d) you can take loans to supplement your income or invest in other options.