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Don't short change your 401K
Financial focus
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Your 401(k) plan can be a major source of your retirement savings.
Your 401(k) offers different investment options and the chance to accumulate tax-deferred earnings. But what will happen to your 401(k) if you leave your job before you retire? You've got choices:
• Cash out. If you need the money, liquidating your plan is an option. Caution: if you cash out, your company will likely pay you 80 percent of your account value, withholding the rest for taxes. And if you're younger than 59-1/2, you may well be slapped with a 10 percent penalty. Even worse, you'll have lost a key source of your retirement income.
• Leave the money in your company's plan. Not all companies offer this option, but many do. If you like the investment options available, then leaving the money alone may not be a bad idea. On the other hand, since you will no longer be employed by the company, you might fall "out of the loop" as far as 401(k) plan administration, so you might be caught by surprise if the company changes options.
• Move the money into your new employer's plan. If your new employer has a 401(k), and allows transfers, you could roll the money over. This might be an attractive option if you like your new employer's plan.
• Roll the money over to an IRA. You may find several advantages to rolling your 401(k) over to an IRA. First, your money can continue the potential to grow on a tax-deferred basis. Second, you can invest your funds in virtually any investment you choose. Third, if you have more than one 401(k) account going, you could find it advantageous to consolidate them into a single IRA, making it easier to allocate and monitor your assets. And fourth, IRAs give you flexibility if you plan on passing money to your children. In fact, if your children inherit an IRA, they can stretch withdrawals out over their entire life, if they choose.
If you do decide to move your 401(k) to an IRA, make sure to request a "trustee-to-trustee" transfer. The money will then be moved directly to an IRA, minimizing the risk of mistakes and keeping your money invested the entire time.
Before making any moves with your 401(k), consult with your tax and financial advisors.

Cardella is a financial consultant with Edward Jones in Hinesville.

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