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4 401(k) Options When You Leave a Job

By U.S. News & World Report

Your company 401(k) plan helps you to build retirement savings through employer matching and tax-deferred investment growth. But when you leave the job to move on to another opportunity or retire, you need to decide what to do with the account balance. You could leave the money in the 401(k) plan, roll it over into an IRA, take it with you to your new employer’s plan or cash out the account. Here’s a look at which option might work best for you.

[See: How to Max Out Your 401(k) in 2017.]

Leave the money in the 401(k) plan. Many retirement savers have the option to leave the money in a former employer’s 401(k) plan. If you plan to leave the workforce before age 59 1/2, you may want to keep the assets in your workplace retirement plan. Most 401(k) plans allow penalty-free withdrawals for people who separated from the employer at age 55 or later. If you move the money to an IRA, you will typically need to wait until age 59 1/2 to avoid the early withdrawal penalty. Workplace retirement plans such as 401(k)s also have better creditor protections than IRAs, which could be important for retirees who are struggling with debt.

Remember to compare the fee structure of your 401(k) plan to the costs of a new employer’s 401(k) plan or an IRA. If your current plan custodian is a low-cost provider, the pricing may make a compelling case to stay put. However, if you have a high cost plan with excessive fees and other administrative costs, you may need to look elsewhere.

In addition to ensuring that the investment offerings are low cost, you should determine whether your choices provide enough diversification opportunities. You might want to go beyond stocks, bonds and cash and diversify into additional asset classes such as international and real estate funds. You may also want access to low-cost index funds such as those that track the S&P 500 that will help drive costs down and ensure you participate in future market growth.

[Read: 5 New 401(k) and IRA Rules for 2017.]

Move your money to your new employer’s plan. If leaving the money with your previous employer does not make sense, consider whether your new employer’s plan is any better. Check whether your new job offers a plan with low costs and fees, diversified investment options, access to index funds and better reporting and planning tools. Your decision is easy if you get to leave an expensive 401(k) plan and your new employer offers a well-designed retirement plan. An added benefit of rolling into another employer retirement plan is you retain the creditor protection.

Roll over to an IRA. If you won’t need access to the money in your retirement account before age 59 1/2 and don’t require creditor protection, consider rolling over your 401(k) account balance to an IRA when you change jobs. IRAs generally provide more account control and investment choices than 401(k) plans. You determine where the money is held and can choose a low-cost custodian to hold and invest your money. You no longer have to deal with your previous employer’s human resources department every time you need to take a distribution, make a change to your account or update a beneficiary designation.

Over your career, you may participate in several 401(k) plans with different employers. You can consolidate all of your 401(k) plans into a single IRA, which will make it easier to track and manage your retirement savings. Fewer accounts will also make it easier to calculate your required distributions after age 70 1/2.

[See: 10 Tips to Boost Your IRA Balance.]

Cash out. There are very few reasons to take the cash and run. When you cash out your retirement accounts you will create a tax bill and remove the potential of those assets to keep working for you. For those younger than 59 1/2, in addition to the taxes generated at ordinary tax rates, the distribution will be subject to a 10 percent early withdrawal penalty. This might lead to a domino effect where more money is pulled from retirement accounts to cover the additional taxes due in April. The better choice is to continue to let these assets work for you and defer their use until you truly need them in retirement.

Changing jobs or retiring is a major life event. It is important to make sure you know all the factors that are impacted by this change. Retirement assets are often overlooked because of the excitement of moving on to a new life adventure. However, keeping tabs on your retirement savings is essential in order to minimize taxes and keep your money growing for the future.

Brian Preston and Bo Hanson are fee-only financial planners who host the podcast, “The Money-Guy Show“.

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4 401(k) Options When You Leave a Job originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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