Once you separate from an old employer, the vested funds in your employer sponsored retirement account (401(k), 403(b), or 457) are yours. You will need to decide what to do with those assets and we outlined the viable options below:
1. Leave your assets as is with your old employer’s plan
You may be able to leave your account in your old employer’s plan. This option typically does not require you to take any action.
Things to consider:
Does this account have an administrative fee? If so, will this fee continue to be charged after you leave your employer? Employers may subsidize fees during employment but may stop upon termination.
Does the fund selection of your current account allow you to meet your investment and performance goals, or do you have access to limited funds with high fees?
How often does your current plan allow you to change your investment allocation? Some employer plans may not provide the option to change your allocation more than once per quarter.
Is there an account minimum required to keep your account with your old employer? Does your account balance meet this minimum, or will you have to roll your account out?
2. Roll your assets into your new employer’s plan
If your new employer offers a 401(k), 403(b), or 457, you may be able to roll your assets into this account. You’ll want to check with your current employer’s plan administrator to ensure that this is an option prior to facilitating a rollover.
Things to consider prior to rolling your funds into your new employer’s plan:
Is the current plan transparent in terms of understanding your losses/gains from the investment?
Does the fund selection of this plan allow you to diversify your portfolio at a low cost or is the product predefined?
Can you compose the portfolio yourself or is it predefined for you?
Does your new employer plan have any fees associated with this option?
3. Roll your assets into an M1 IRA
Rolling your assets into an IRA is another option you have while considering what to do with your old employer retirement account.
We’ve listed a few advantages of rolling your assets into an M1 IRA:
Broad selection of over 6,000 securities to invest in
Transparent reporting to track your performance
Ability to edit your Pie (change your investment allocation) at any time
Auto-Invest feature to establish a deposit schedule for future contributions
Consolidation to hold all of your retirement assets under one roof
Things to consider prior to rolling your assets into an IRA:
Traditional, Roth, and SEP IRAs are not eligible for loans. If your old or current employer plan allows you to take a loan from your account, you should consider if you anticipate taking a loan.
Employer sponsored retirement plans offer protection from creditors at the federal and state levels, while state law creditor protection of IRA accounts vary.
The funds will automatically be invested if auto-invest is on in that account.
4. Cash your account out
Your last option is to withdraw the funds from your old employer’s plan.
Things to consider prior to requesting a withdrawal:
You will owe federal and state taxes on your withdrawal amount
If you are younger than age 59.5, your withdrawal may also be subject to a 10% premature withdrawal penalty
Any funds that are withdrawn will lose the ability to grow in a tax-deferred account (or tax-free, if you have a Roth IRA)
If you’re still not sure which option is right for you, we recommend speaking with a qualified financial professional or tax advisor about your specific circumstance.
If you decide to roll your employer sponsored retirement account into an M1 IRA, please visit our Instructions Guide or our FAQ for answers to additional questions.
M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
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