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Q: I’m switching jobs. Can I still get my 401(k) out?

A: Yes. If you decide to switch jobs you will maintain control over your vested 401(k) account. (Your employer’s 401(k) contributions “vest” or become yours immediately or after a predetermined period of time, depending on your 401(k) terms. You are always entitled to your own contributions). You have a few options for what to do with your 401(k) when you change jobs. You can cash it out, leave it right where it is or transfer it to either your new employer’s plan or a rollover Individual Retirement Account (IRA). Though cashing it out may sound appealing, it comes at a cost: not only will you have to pay federal and state income taxes on the money but if you are younger than 59 ½ you will also be required to pay a penalty equal to 10% of the size of the withdrawal. If you’re happy with the investment opportunities offered by your former employer’s plan and your 401(k) balance is more than $5,000 you can simply let it sit and continue to grow. If you’d like to consolidate your retirement savings in one place or you’d like a different 401(k) plan, you can transfer your 401(k) balance either into your new employer’s retirement plan (if that plan allows transfers) or you can “roll over” the balance into a traditional IRA. A direct rollover is a seamless transfer of the funds from your old account into the new one. The money never passes through your hands – it goes directly from the trustee of one account to the trustee of another – and continues to grow, tax-free.

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