Your Old 401(k) — Know Your Options!

Lucas Casarez | LevelUp Financial Planning

The average American will hold at least 11 different jobs over the course of their working career. So what should they do with their old employer retirement accounts? While sometimes it’s super simple, there are options to evaluate. And with the special provisions from the COVID-19 CARES Act there are additional strategies to consider.

Here’s the process I use with my clients to analyze their old 401(k) to ensure we determine the very best option available to them.

  • Find Your Old 401(k). It’s important to locate your old account to properly analyze your options.
  • Should You Stay? How do the investment options compare? Your 401(k) is not free. Hidden in the expense ratio of your investment options is the cost — a crucial factor in evaluating your old 401(k) plan.
  • Should You Go? You may be able to rollover your old 401(k) into your new 401(k) plan. You can also gain more control by moving it into a Traditional IRA or a ROTH IRA at any financial institution you choose.
  • Should You Cash It Out? Usually there is a 10% penalty if you access your retirement account contributions before age 59.5. Your distribution is also taxable as income. This is where special COVID-19 CARES Act provisions come into play: 

For 2020, if you are impacted by COVID-19 you can avoid the penalty on distributions up to $100,000.

You can also spread the tax impact of the distribution over 3 calendar years.

  • If you want to return the funds to the account: Usually, you would have just 60 days to replace the funds.

Again, the special COVID-19 CARES Act provisions change the rules temporarily.

For 2020 distributions, you can return the funds over the course of three years.

As you can see, there are quite a variety of considerations to review with your current financial plan. The unique  COVID-19 CARES Act provisions create new areas of flexibility.

But if your situation warrants it, you can still consider cashing out your 401(k) as a “break in case of emergencies” scenario.

Lucas Casarez is a husband, father of two amazing kids, and a Certified Financial Planner™. He founded Level Up Financial Planning, one of the few fee-only financial planners in Northern Colorado. The mission of Level Up Financial Planning is to guide his clients in taking their financial confidence to the next level.

Have a personal finance question you would like me to answer in a future week?

Email: askluketheplanner@gmail.com

Lucas Casarez

Certified Financial Planner®

“Take Your Financial Confidence To The Next Level”

www.levelupfinancialplanning.com