What to do with your 401(k) - Your Options, the Pros and Cons

Below is a quick guide to 401(k) plan rollover options and the pros and cons of each.

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Option 1 - Cash it out


  • You have the money available to cover expenses


  • Lose out on future tax-advantaged growth opportunities
  • Automatic withholding for taxes
  • Penalty for early withdrawal if you are under 59 1/2

Option 2 - Roll over to an IRA


  • Wider range of investment choices
  • Simplify by consolidating multiple accounts into one
  • Maintain Tax Advantaged status
  • Ability to make additional contributions


  • No loan option
  • Some 401(k) investment options may not be available outside the plan

Option 3 - Keep your 401(k) 


  • Loans are allowed
  • Access to 401(k) specific investment options (e.g. Fixed Account) 


  • Limited Investment Options within plan
  • Additional contributions may not be allowed
  • Minimum balance typically required

Option 4 - Transfer to another employer-sponsored plan


  • Loans may be allowed
  • Consolidate accounts


  • Limited plan investment options
  • May take additional time to transfer -waiting period

There you have it!  If you have questions or comments please let me know. Or see our 401(k) services page for some information on how we can help you with your own 401(k).

Since we are on the topic of 401(k), there is one investment in particular that is unique to 401(k) plans and that is the Fixed Account or Guaranteed Principal account.  Depending on its yield this may be a good choice for the Bond Allocation of your portfolio. With the very low interest rate environment these rates can sometimes be very competitive when considering the special characteristics of this type of investment.  I plan on posting a future blog post about these investments later.  Refer back to an earlier blog post about the role of bonds in a portfolio for additional information.