What do I do with my 401(k) when I start a new career?

When you’re embarking on a new career, it’s important to consider your old 401(k) carefully. Even if your new job doesn’t offer a 401(k) option, you can (and should) keep the retirement savings on track.

Take it or leave it … or roll it over
If you are transitioning from one career to another and considering what to do with money from your past employer's 401(k), there are generally three options for you to choose from.

• Keep it where it is. You'll still have the same tax-deferred growth potential that you’ve had to date, however, you won't be able to contribute to your old 401(k). Keep in mind that leaving your assets in the plan limits you to the investment options made available by your former employer. Investment expenses for options within a plan may be lower than those charged for investments in an IRA (individual retirement account).
• Move it to your new job. If your new employer provides a 401(k) plan, you could be allowed to roll over your previous account into the new one. Many find it’s easier to manage a single account than to try and keep track of multiple 401(k) accounts. However, the new plan may have different rules, such as withdrawal restrictions, as well as different investment choices, so be sure you’re okay with the options.
• Roll into an IRA. If you want to manage it yourself or need more investment options, a rollover IRA may be a good choice. Within an IRA, your funds can be invested any number of ways. You also have the option to roll over to a Roth IRA, a move which you should discuss with a financial professional.

Whatever next step you're considering, be sure to also consider and compare fees and expenses of the plan or IRA.
 

Learn where 401(k) meets 403(b)

In certain cases, a career change can lead to even more options for your 401(k). If you ditch the corporate world for something more philanthropic, for example, your future may include a new type of plan: the 403(b).

• Understand 403(b) plans. A 403(b) is a tax-advantaged retirement plan similar to a 401(k) plan, but designed for employees of school systems, nonprofit hospitals, religious organizations and other tax-exempt employers, known as 501(c)(3) organizations. Participants may be able to make pretax or Roth contributions. Some organizations match these contributions.
• Do some comparison shopping. In general, investment offerings within 403(b) plans tend to be more limited compared to 401(k)s. It’s wise to get to know the investments in your new employer’s plan before deciding your next move.

DIY with an IRA
If your next move does not come with an employer-sponsored retirement plan, consider saving for retirement on your own. Here are two common scenarios:

• If you work for someone else and there is no retirement plan attached to your new role, you could make annual contributions to an IRA. You can consider a traditional or Roth. With a traditional IRA, you may qualify for a tax deduction on contributions if you are within certain household income limits. You won’t pay taxes on your earnings until you make a withdrawal. With a Roth IRA, your contributions are made after you’ve already paid taxes on that money, so your contributions are always tax-exempt. Earnings are tax-exempt if the withdrawal is qualified. A financial professional can help you make the right choice.
• If you work for yourself, consider the benefits of retirement plans for the self-employed, such as a SEP IRA, SIMPLE IRA or Solo 401(k) plan. Each plan offers tax-favored ways to save and invest for retirement.