I'm unemployed but I have $20,000 in a 401(k) from a previous employer; what should I do with this amount so that it still experiences growth?

I have $20,000 in a 401(k) from a previous employer. I’m currently in between jobs. What do you recommend that I do with that money so that I continue to experience growth? 

401(k), Retirement Plans
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February 2018

I am sorry to hear about your recent job loss, but I am sure a better opportunity will present itself shortly.

There are couple of options you can explore that will allow you to keep the monies invested and allow you to continue the growth of the account:

1) You can leave the funds in the 401(k), assuming the plan does not have any provisions requiring you to take the monies out.  Typically, employers may warrrant 401(k)'s with balances under $10,000 (or some similiarly low amount) distribute their funds out of the plan.  Being that your account is $20,000 I would imagine that is high enought that you would not need to be concerned and could keep the funds in the plan and continue to manage it as you did while you were employed.  The only difference now, you will not have contributions going into the plan.

2) You can perform a direct rollover from the 401(k) plan into your personal IRA account.  You can always set up a new IRA if you do not have one already.  You will want to make sure that you have the current provider make the check payable directly to the new provider for your benefit so that it is considered a direct rollover and not a distribution where they will automatically withhold 20% for federal tax purposes and that may cause you additional issues.

You will want to do an analysis of the pro's and cons of options one and two to see what makes the most sense for you.  Typically some benefits of option 1 would be: lower costs, the opportunity to roll these monies to your new employer when you are employed again, online access.  Options that would be obtained through option two would be: control of the investments, the opportunity to invest in vitually anything you want, the ability to get professional advice and guidance.  

Many times when weighing the benefits/disadvantages of options one and two, option two will prevail.  You may want to consult with your fiduciary advisor and see what makes the most sense for you.  Whatever direction you decide to go on, we wish you the best of luck in this process and finding your next employer.

February 2018
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February 2018