If you’re like me, you may have held off from investing in your companies’ 401(k) plan due to your uncertainty about what the future may hold. Will you still be employed in the same place a year from now? Will you actually leave your boss and start that business you’ve been thinking about? Will the Sun engulf the entire solar system next week, thus rendering all 401(k)’s useless?
Unfortunately, If you are like me (or rather, how I used to be, back in my young, naïve days), this also means that you’ve missed out on valuable time during which your money could have grown, time that you can never get back. Not to mention the fact that your money would have grown tax-deferred, and that your company more often than not would have matched your contributions up to a certain amount.
The thing that got me on the 401(k) bandwagon was understanding my options for what I could do with it, no matter what path the future took me down.
Leave it Where it is
If you leave your current employer, you’re under no obligation to move your 401(k), you can simply leave it where it’s at. This may be the easiest option, since it requires doing absolutely nothing, but it may not be the best option, considering how much of a pain it may become to keep tabs on it if you’re not around to do so.
Roll it Over to Your New Employer
This option nearly everyone is already aware of, as it’s a pretty common one. When you get a new job, simply roll your entire 401(k) over into your new employer’s 401(k). A small hassle, but there’s no fees involved for doing this, and you can continue to invest your hard-earned money just like you were before.
Roll it Into an IRA
This is the possible option that really sold me, since IRAs are handled by many different kinds of independent brokerages, meaning your money is no longer tied to an employer.
Additionally, there are so many more options for what you can invest your money in with a brokerage IRA account. Individual stocks, bonds, and ETFs are only a few of the options. Personally I want as much flexibility as possible to do whatever I want with my own money. This probably stems from my needing to feel in control of everything… yeah, I have some issues.
A downside to this option is that you’ll no longer receive your companies match, if they have one.
Be an Individual
If you’re taking the self-employment path, but still want something to sock a large amount of cash into, tax deferred, to support your habit of drooling in a wheelchair at the local nursing home when your 85 years old, then you may want to roll over your employer-sponsored 401(k) to an Individual 401(k).
Only those who own businesses and do not have full-time employees are eligible (spouses don’t count as employees), but the biggest benefit to this plan is that the yearly contribution limit is a maximum of $49,000, with an additional $5,500 authorized if you’re 50 or older. Everything else is pretty much the same as more traditional retirement plans, including early withdraw penalties and borrowing against your account balance.
Get to Know ROB
This is a questionable and highly risky option, but if you really really really want to start that business and can’t find the means to generate any start-up capital, there is an option called ROBS (no, it’s not the R.O.B. robot that came with the purchase of the original Nintendo Entertainment System). ROBS stands for "Roll-Over for Business Start-Up”, Which allows you to use the money in your 401(k) to invest in your business without having to pay an early withdraw penalty. This option is highly complicated due to it’s nature being close to something called “self-serving” (something the IRS doesn’t like… probably because it’s kinda illegal), and as such, hiring an accountant to ensure it’s done right is pretty much required.
Now that you’re armed with this info on some of the various options you have for dealing with that 401(k), go invest that money, get that employer match, and work on getting filthy, stinking rich. As long as that thing with the sun doesn’t happen, you should be good to go.