10 Dec I’m changing jobs. What should I do with my 401(k)?

Q. I’m changing jobs next month and I’m not sure if I should leave my 401(k) where it is — it’s done well — or if I should take it to my new employer’s plan. What are the pros and cons?
— Worker

A. Congrats on your new job.

The answer to your question doesn’t necessarily depend on if investments have done well.

It really depends on if you’ve allocated the account properly according to your risk tolerance, said Evan Drury, a chartered financial consultant with U.S. Financial Services in Fairfield.

If you’re not sure of your risk tolerance level, do a quick online search for a questionnaire and you can get a better idea.

Next, compare the two plans, Drury said.

What are the investment options within each? What are the plan fees? What are the underlying fees of each investment?

“Once you know what allocation you should have based on your risk level, then it will be a bit more clear if you should move your money or not,” he said.

If you decide the new 401(k) has the options you need, one pro is that it will reduce the number of accounts you need to manage, Drury said.

“You can contribute to one centralized location with all your 401(k) assets. The old plan cannot continue to be contributed to,” he said. “It centralizes one strategy working towards your goals with a clear path based on one set of investments.”

If plan fees or investment fees are higher at the old plan, you could reduce fees across the board by making the move.

There could be cons to moving the money over.

It removes the ability to use Rule 55, an IRS rule that allows people to take money from an employer retirement plan without paying the 10% penalty if they leave their job in the year they turn 55 or later.

Another con would be if the new plan’s fees are higher or if the investments choices aren’t as good or broad, he said.

You do have another option. You could roll the account into an IRA, Drury said.

This would give you full control of your investments, he said, and it would give you the broadest investment options.

The other option — rarely recommended — would be to cash out the account. But that would mean paying a 10% penalty and taxes, Drury said.

He recommends you consult with a financial advisor and/or a certified public accountant to review your personal situation in more depth.

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This story was originally published in December 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.