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Staying at one company for 30 or 40 years is becoming increasingly rare. Today, more people are saving for retirement in multiple employer-sponsored accounts. This raises an important question: should you leave your 401(k) where it is, or consider other avenues?

In this episode of Money Wisdom, Jake Doser, CFP®, CPWA® and Nicholas J. Colantuono, CFP® break down four main 401(k) options and the pros and cons of each.

Option 1: Leave It Where It Is

The first option is as simple as it sounds — you can leave your 401(k) in its old plan with your previous employer. If you’re comfortable with the intricacies of that plan or online account, leaving it may be the easier choice. Another benefit is the money won’t count as taxable income, since it will remain in a tax-deferred account.

To understand the full scope of your options, it’s important to compare your new 401(k) account with your old account. There may be more attractive investment options in your old plan than in your new plan, or vice versa.

Option 2: Roll It into Your New Employer’s Plan

The main benefit of rolling your older employer’s plan into your new 401(k) plan is having everything in one place. Instead of tracking down several old accounts, you’ll have one account at one financial institution.

However, there is less flexibility when you’re limited to a single plan’s investment choices. This is why it’s typically more beneficial to roll your 401(k) into an individual retirement account (IRA).

Option 3: Roll It Into an IRA

An IRA provides access to virtually any investment option, including those outside the stock market. Since an IRA is still a retirement account, you don’t pay taxes on the transfer. You can self-direct your investments or work with a professional to create a strategy tailored to you.

A minor downside is that IRA contributions don’t receive an employer match. Still, using a 401(k) for new contributions and an IRA for older funds can offer more flexibility.

Option 4: Cash It Out

Unless it’s an emergency, we do not recommend taking money out of your 401(k) if you’re under 59½. While you have immediate access to cash, you’ll pay income taxes plus a 10% early withdrawal penalty. You also lose out on potential growth that money could have earned in a retirement account.

Curious how your 401(k) fits into your investment strategy? Get your free Ultimate 401(k) Guide by texting “GUIDE” to 800-757-0436.