SPOKANE, Wash. — Starting a new job? You’re probably wondering what to do with the 401(k) you left behind at your old workplace.
It might be tempting to cash it out, especially for job seekers with missing paychecks. Financial experts warn that should be a last resort.
Jon Maroni, a Financial Engagement Manager with Numerica Credit Union says the smartest move is usually rolling that money into your new employer’s plan.
“For many folks the simplest thing to do is going to be roll it over to the new plan,” Maroni said.
Why? Because cashing out early comes with some serious financial pain. Sure, you’ll pay a 10% penalty and income taxes, but that’s not even the worst part.
“In the long run that $3,000 can translate into hundreds of thousands of dollars if you keep it invested, especially if you’re early on in your career in like your early 20’s,” Maroni explained.
But what if you’re between jobs and need cash now? There are options that don’t involve raiding your retirement.
Many 401(k) plans let you borrow from yourself. Maroni encourages anyone thinking about cashing out a 401(k) to meet with a free advisor at a financial banking institution or credit union.
“You sometimes can take a loan from your 401(k)” Maroni said.
“In that situation you will be charged interest, but you’re the lender, so that interest is actually going right back into your 401(k) account as you make those payments,” Maroni said.
If you’re working gig jobs or side hustles without access to a traditional 401(k) you can still save for retirement by opening an Individual Retirement Account (IRA).
“Maybe you’re driving for Uber or Uber eats, you can still open up an IRA to start investing for your retirement, it’s about having taxable income,” Maroni noted.
He stressed, your 20s and 30s are prime for building wealth. The decisions you make about your 401(k) during job changes can make or break your retirement goals.
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