Do you have an old 401-k plan from a previous job? If yes, chances are you’re leaving money on the table or worse losing money.
Article by: Lori Brand, Managing Director SafeChoice Financial Group
It is estimated that approximately 45% of people with old 401-k plans either cash them out after moving to a new job, or worse, leave them on deposit with their old employer.
Cashing out of course, is never a wise option as you are subject to taxes as ordinary income in addition to a 10% tax penalty. If you owe or come close to breaking even at tax time, this move will cost you more with Uncles Sam when you do your taxes. If you get a refund, your refund will be smaller because you’ve just effectively increased your income (without really doing so) and let’s not forget that 10% tax penalty.
Leaving your old 401-k on deposit with your old employer comes with its own set of challenges, one of the most significant being that you are no longer able to contribute to that plan. In light of recent market volatility, if your 401-k is heavily weighted in equities, (as most are), your inability to contribute means you can no longer dollar cost average new shares at a cheaper price. Your shares are simply going to lose value.
Dollar cost averaging is attractive with a current 401-k as when the market drops you are purchasing shares at a discount, and when the market goes up, your shares are worth more. You can no longer purchase (or contribute) to that plan, so no dollar cost averaging for you.
So what options do you have with an old 401-k plan? Talk to a financial advisor, who will help you move a 401-k to an IRA and suggest ways to fund that IRA that will match your financial objectives and time factors. There are many terrific options for a 401-k, so don’t leave money on the table by leaving it sit.
About the Author: Lori Brand
Lori Brand is the Managing Director of SafeChoice Financial Group and the founder of the Monmouth County Women’s Business Connection networking group in Monmouth County NJ. To learn more about Lori Brand go to www.SafeChoiceFinancialGroup.com. To join the virtual and local networking group go to www.facebook.com/groups/MonmouthCountyWomensBusinessConnection/