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Ask Dave

What Do I Do With My 401(k) When I Change Jobs?

Tracy asks how to handle a 401(k) when moving from one job to another.

QUESTION: Tracy on Twitter asks how to handle a 401(k) when moving from one job to another.

ANSWER: I always roll it to an IRA—100% of the time. The reason is simple. Your new company—if you move it there—will have eight or 10 or 12 choices. Your old company has eight or 10 or 12 choices, so you have limited choices for your 401(k) and you’re having to—to get your money—mess around with HR, and by the way, while you work for that company, you’ve got no access to your 401(k). In an absolute screaming crazy emergency, you can’t cash it out. You can cash out your own IRA to avoid a bankruptcy if you have to or to avoid a foreclosure or something like that. You can go in for hardship withdrawals, but they’re very tough to get.

I don’t recommend you ever doing a hardship withdrawal except in an absolute, horrible, worst-case scenario.

Roll your money to an IRA—a traditional IRA. That way, there are no taxes on it. It’s called a direct transfer IRA. You want the money to go straight from your 401(k) into the IRA. Then you can choose from 8,000 mutual funds, and if you want to move it around, you can move it around. You’re in control of the money.