What to do with a 401k when you leave a job

What should somebody do with a 401k If they’re leaving their job? What should they look out for?

When you leave your job the 401k you had at that job is typically going to be set aside by the company. 

Who manages a 401k from a job you no longer have?

Also referred to as an orphan 401k. It’s still yours but it’s not going to be managed anymore. Which means nothing’s really being done with it. 

It’s just sitting there. Kind of like it’s sitting there on the railroad tracks, waiting for the train to come along and knock it off. 

Knocking it down like happened in 2000 and 2013 and various other times when the stock market took a dive. It leaves your retirement funds open and at risk. 

When any 401k takes a major hit like this, it can take years to recover. 

If you’re in your 50’s or 60’s, this may be a major setback to retiring when you originally planned to.

Options for an orphan 401k to reduce taxes

So you have a 401k and you leave your job to go to another job, what are your options? 

That money can be moved with no taxes being assessed. It just has to be a rollover to another qualified account. 

A qualified account that will not charge you any taxes. When you move that money over to another qualified account. It will give you something that’s really a lot easier to handle and protects your money.

For instance, if you take it and roll it over into an annuity. You don’t pay any taxes when you roll it over, you only pay taxes when you take it out. 

Protection from Capital Gains Tax

And the tax will be income tax, not capital gains tax. If the government does what they are talking about doing, then capital gains tax is going to be very expensive, potentially taking close to 45% of your money. 

So you want to protect yourself from capital gains if at all possible. 

With a 401k your only protection is if you have maybe another $100,000 that you didn’t lose in the market. 

Now I love the market and the horsepower of the market, but you got to use it the right way. And you can’t just say, well, I’m just going to dump my money in the market. And my broker is managing that. 

About brokers, let’s say they have a thousand people’s accounts to manage. How much time a day can they actually spend managing your account?

They’re not really managing your account like that. 

We always have all our clients come in here at least once a year, or if they want to come in more often, all they have to do is call and make an appointment and come in to discuss where they are, and any changes they may want.

I have one client, a nice person, and a good friend of ours. She said, “I thought you said it doesn’t take a lot to manage an annuity?” And I said, well, 30 minutes a year, isn’t really a lot of time. And, what a difference it can make. 

Here’s what can happen, one client of ours moved to Florida. When he was in Florida, I talked to him on the phone every year. One year he was busy fishing or something and he couldn’t talk to me and it cost him about $8,000 that he would’ve made had he done what I wanted him to do that year. 

It’s very important to review your accounts at least yearly. It isn’t a lot of time spent. Especially with someone who’s trying to do better for you. 

We can change the way money is allocated in an annuity every year. 

So give us a call. We can help you more with protecting, growing, and managing any savings you’ve accumulated. We can also help you create a wealth plan, and there’s no charge or obligation.

It’s amazing how reducing things to writing and seeing it written down can be an eye-opener. And that’s what we provide for you. We provide it free of charge. So give us a call at 423-710-2009. We’ll be glad to help you.