What are my 401K options?

What to do with your old 401K's?

by Phil Wieloch


If you are like most people, you may have several jobs and work with several companies over the course of your lifetime. So what do you do with your

old 401K's? Talk to a financial professional who is trusted in your community as there are many things to consider before making a final decision including your including your health, age, retirement goals, risk tolerance,tax and family status and other personal and professional preferences.    


1) Leave it where it is.

  a) The danger in doing this is that you have no control over what happens to your old company. It may become insolvent.
  b) If you have company stock, you may consider taking less risk or diversifying your risk. Some people fall in love with their company stock. It is smart to look at other options.
  c) You may need to take a hardship in the future. Your current plan may or may not allow early distributions due to hardship. If they do allow them, typically, it is something that you have to qualify for. You may not want to deal with this process.
  d) Chances are you have a limited investment menu to choose from. Most 401K plans have between 7 and 15 funds available including company stock and a fixed account. (Fixed rates are at an all time low as you may know.)


2) Take a cash distribution.

  a) You can most certainly take a cash distribution; however, don’t forget that if you are not 59 ½ or more, you will owe the government a 10% penalty of the entire amount.
  b) Be sure you take out a minimum of 20% withholding because this money has not been taxed yet. You maybe pushed into a higher tax bracket which means you may have to withhold more than 20 % to avoid a big tax bill at the end of the tax year.
  c) Talk to a tax professional before you go ahead and take the distribution to be sure you understand the tax ramifications and penalties.


3) Roll it into a ROTH IRA (Roth conversion).

  a) A Roth IRA would continue to grow tax deferred however, taking distributions from a Roth are potentially TAX FREE.

  b) The challenge of course is that the entire amount of money you convert to a Roth is taxable upon conversion.

  c) This is not a very realistic option for most people unless you are in a high tax bracket or you have a large 401K whereas you may consider a portion of your retirement money for a Roth conversion.


4) Roll it into a Traditional IRA. (Typically the option that makes the most sense).

Many options are available including:


  a) mutual funds (either a managed account for a fee or a commission account depending on how much help you need from an advisor). 

  b) stocks (once again either a managed account for a fee or a commission account depending on your risk tolerance and investment experience). Another option here is an on line broker like E-Trade or Scott Trade. However I am not recommending one or the other nor do I have any affiliation to these companies.

  c) annuities (the only option that in the payout phase of your life will pay an income for life even if the account balance goes to zero using a "living benefit rider" available for a fee in either an equity indexed annuity or a variable annuity). Most annuities have guarantees available for income, for principle and for a death benefit. Most of the time for a fee. However the guarantees are only as strong as the insurance company behind them!


The information provided is general and educational in nature. It is not intended to be, nor should be construed as legal or tax advice. Diversification does not ensure a profit nor guarantee against loss.

Philip Wieloch
Licensed in CT, RI and FL
Main Office
67 W. Main St. Unit 111
Clinton, CT 06413
Office (860)664-0333 Cell (203)507-6533