Are you looking to advance in your career? When considering possible financial implications, remember your 401(k) to minimize tax consequences. How you cash out your 401(k) after quitting depends on your account balance, future goals and your future and former employers’ retirement plan rules.

It’s important to consider the 401(k) withdrawal rules, tax implications and alternative options before deciding. This guide explores your various options for your 401(k) and how to get your 401(k) funds after quitting your job.

Options for Your 401(k)

After you leave your job, you have three main options for your 401(k). You can withdraw the funds, roll them into a new account or keep your account with your former employer.

Take a Lump-Sum Distribution

You can cash out your 401(k) after quitting. Cashing out your 401(k) is known as a lump-sum distribution. This option is generally not recommended because you may not receive the full amount in your account through this method. The IRS will require you to pay a 10% early withdrawal penalty and taxes for withdrawing the money before the official retirement age.

Rollover to Your New Employer’s 401(k) Plan

Moving your retirement funds to a new 401(k) account on your new employer’s plan can be a viable option if it offers low costs and similar investment options. Discuss the plan with the retirement plan representative or the HR department to learn more about it and whether it suits your needs.

Rollover Into an IRA

An IRA can be a good option if you want more control and flexibility over your retirement funds. IRAs have more investment options to help you reach your retirement savings goals. They also have better withdrawal flexibility and low or no administration costs. While the rollover process is similar to a rollover to a 401(k), you’ll have to instruct your former employer’s plan administrator to rollover your assets to the IRA.

Keep Your Account With Your Former Employer

Depending on the amount in your account, you might be able to keep it with your former employer. If your account has less than $7,000, your employer can move your money into any IRA they choose. If your account has less than $1,000, they can also pay the balance with a check. Your former employer must allow you to keep the account with them if the total balance is higher than $7,000.

If you leave your funds with the old plan, you can no longer contribute to that account, so it’s beneficial to open a new plan elsewhere, even if you still plan to continue working.

How to Cash out Your 401(k) After You Quit

Cashing out your 401(k) after quitting is generally simple. Inform your employer that you would like a lump-sum distribution on your 401(k) funds. They will then instruct the plan administrator to deposit the funds directly into your bank account. Following this, you will need to pay a 10% early withdrawal penalty and additional taxes for withdrawing the money before retirement.

The 10% penalty will typically not apply to people who retire after 55 and before 59 ½. Finally, if you are over 59 ½, you can take penalty-free withdrawals since this is the recommended retirement age. You can contact a financial expert to ask about all the specific fees you might owe the IRS.

How to Roll Over Into a New 401(k)

Rolling over retirement funds to a 401(k) with your new employer involves these steps:

1. Check your employer’s plan: Understand your options with your new employer. Check their website and online reviews to learn more about the quality of their services.
2. Open your new account: Many plan providers have their own rollover process, so contact them for details on the documents and information they require from you and the steps you need to take.
3. Begin the rollover process: When the rollover process begins, you will need to complete paperwork from both the old and new administrators and allow your new administrator to transfer your retirement funds.

How to Roll Over Into an IRA

IRAs can be an excellent option for building a more diverse retirement portfolio. Rolling over into an IRA follows similar steps:

1. Choose a plan provider: Unlike 401(k)s, which are employer-sponsored, an IRA is an individual account. Choose a provider that allows you to invest in the assets you want. Self-directed IRAs can be an excellent option for investing in alternative assets like real estate, cryptocurrency and private equity. You should also compare self-directed IRA fee structures and benefits of different providers. It helps to read their reviews and contact custodians to learn about their level of expertise.
2. Gather the relevant retirement account information: Before your last day, gather contacts and login information. Note your vested amount to help you decide what to do with your retirement savings.
3. Rollover funds to an IRA: You can avoid potential penalties and taxes by doing a direct administrator-to-administrator transfer. If your employer gives you a cash distribution, they must withhold 20% for taxes. You can avoid taxes if you pay the distributed amount plus the 20% withheld into your new account within 60 days.

Tax Implications of 401(k) Decisions

Some tax implications you’ll want to keep in mind include:

• Leaving your funds with your former employer’s 401(k) plan allows you to avoid paying taxes until you’re ready to withdraw the funds for retirement.
• Moving your funds to the new employer’s plan will not accrue taxable income.
• A cash distribution on your 401(k) funds may increase your taxable income for the year by the gross amount.
• Depending on your circumstances, the 10% withdrawal penalty will typically occur if you haven’t reached 59 ½.

Move Your 401(k) Funds to a Self-Directed Account With Accuplan Benefits Services

If you’re considering rolling over your retirement funds and investments into an IRA, a self-directed IRA can be beneficial. It offers more control and allows you to invest in alternative assets like private equity, real estate, precious metals and cryptocurrency.

Accuplan can act as a self-directed IRA custodian to help you gain more investment options, flexibility, greater control and tax advantages. Our knowledgeable experts aim to help you diversify your retirement portfolio and meet your retirement goals. For more information, contact our professionals to learn more today.

Our information shouldn’t be relied upon for investment advice but simply for information and educational purposes only. It is not intended to provide, nor should it be relied upon for accounting, legal, tax or investment advice.