Reasons to consider rolling funds to your new employer’s 401k plan (or stay in your current plan):

  • Simplicity – by rolling your 401k accounts to your new employer you ensure you have consistent visibility to your funds and performance without the additional hassle of managing multiple accounts.
  • Employer retirement plans generally provide greater creditor protection than IRAs. Most 401k plans receive unlimited protection from your creditors under federal law. With certain exceptions, they cannot attach your plan funds to satisfy any of your debts or obligations, regardless of whether you’ve declared bankruptcy. IRAs are generally protected under federal law only if you declare bankruptcy. If you’re concerned about asset protection, be sure to seek the assistance of a qualified professional.
  • You may be able to postpone required minimum distributions. For traditional IRAs, these distributions must begin by April 1 following the year you reach age 72[1]. However, if you work past that age and are still participating in your employer’s 401k plan, you can delay your first distribution from it until April 1 following the year of retirement. (You also must own no more than 5% of the company).

Reasons to consider rolling over to an IRA:

  • You generally have more investment choices with an IRA than with an employer’s 401k plan. You may typically move your money around freely to various investments offered by your IRA trustee and you can divide your balance among the options they offer.
  • You can freely allocate your IRA dollars amount to different IRA trustees/custodians (meaning financial institutions). There is no limit on how many direct, trustee-to-trustee IRA transfers you can do in one year.
  • You can essentially “convert” your 401k plan distribution to a Roth IRA. You’ll generally have to pay taxes on the amount you roll over (minus any after-tax contributions you’ve made), but any qualified distributions from the Roth IRA in the future will be tax free.

While the balances in your accounts may be really appealing, don’t spend it unless you absolutely need to. If you take a distribution, you’ll be taxed at ordinary income tax rates on the entire value of your account, except for any after-tax or Rother 401k contributions you’ve made. Additionally, if you’re under age 55, an additional 10% early distribution penalty may be applied to the taxable portion of your payout.

Additionally, if you have any outstanding loans with your previous plan, you’ll need to pay it back in full, or the outstanding balance will be taxed as if it had been distributed to you in cash. If you can’t pay the loan back before you leave, you’ll still have 60 days to roll over the “distributed amount” to your IRA. Those funds will of course need to come from another source.

Would you like to discuss your individual situation further? Our financial advisors, available through CUSO Financial Services L.P*, are here for you. Schedule an appointment online or by calling 800.400.8790.

Let’s plan your financial future together.


[1] If you reach age 72 before July 1, 2021, you will need to take an RMD by December 31, 2022.


*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. New England Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members. CFS and its Registered Representatives do not provide tax or legal advice. For such advice, please consult with a qualified professional.