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Don’t leave your 401(k) with your old employer

October 7, 2014 by · Leave a Comment 

Many companies provide tax beneficial 401(k) retirement plans for their employees. Established under Section 401(k) of the Tax Code, it is one of the best tax advantaged vehicles to save for retirement. Some employers offer matching 401(k) contributions to enhance the appeal of the program for its employees.

What happen to your 401(k) fund if you leave your employer? Since there is not going to be any new money added to the 401(k), administrative and other hidden fees associated with the plan is going to eat into earnings or in the case of a down market, will cut into your principal. So, what is the solution? Many suggest rolling the 401(k) into an IRA. Most IRAs do not carry administrative fees. An IRA can also provide wider range of investment options compared to many 401(k) plan investment option offerings. Some 401(k) plans are actively managed and charge a hefty fee for doing just that. Level of active management varies but there are no true actively managed funds, according to financial experts. Converting a 401(k) plan with an old employer into an IRA can also provide you with the peace of mind and takes away the management aspect from you.