When switching jobs, remember to consider your 401(k) plan.

• Depending on your situation, you have options for how to handle the retirement savings you accumulated at your former employer.
• If you don't act, the decision will be made for you.
• Here are some tips for handling your 401(k) plan from your previous job.

Upon starting a new job, you may wish to completely erase all memories of your previous employer.

Ensure that your 401(k) plan is not among them.

If you don't act on your retirement savings, the decision may be made for you, which may not be in your best interest.

Haley Tolitsky, a certified financial planner at Cooke Capital in Wilmington, North Carolina, advised that it is optimal to address this matter during the initial months of transitioning to a new job.

In the Great Resignation, workers have left their jobs at unprecedented rates in search of better prospects in a competitive job market. With an unemployment rate of 3.6%, companies are forced to compete for talent by either increasing salaries or broadening their recruitment efforts.

Over 4.4 million Americans left their jobs in February, as per the most recent data from the U.S. Department of Labor. This is approximately 100,000 more than in January and nearly matches the 4.5 million record set in November.

It is important for individuals to understand what happens to their 401(k) plan when they leave a job and the available options, which may not be clear to everyone.

Here’s what to know.

Leave the money or move it?

You can choose to keep your retirement savings in your ex-employer's plan, but you won't be able to contribute or receive any employer contributions.

Rewritten sentence: While this might be the easiest immediate choice if it’s available, it could lead to more work in the future.

Finding old 401(k) accounts can be challenging if you misplace them. However, Congress is currently considering legislation to establish a "lost and found" database to simplify the process of locating lost accounts.

Tolitsky stated that it is common for individuals to switch jobs, experience life changes, and subsequently forget about their 401(k) plans, resulting in uncertainty about their provider after a decade has passed.

If your balance is below $1,000, you may be removed from the plan, resulting in a tax bill and penalty.

Kathryn Hauer, a CFP with Wilson David Investment Advisors in Aiken, South Carolina, advised against cashing out a 401(k) as it would result in a 10% tax penalty.

You can transfer your balance to another qualified retirement plan, such as a 401(k) at your new employer or a rollover individual retirement account.

If you have a Roth 401(k), it can only be transferred to another Roth account, and this type of 401(k) and IRA involves after-tax contributions.

Qualified withdrawals from Roth money are tax-free, and the money grows tax-free.

Employer contributions to a 401(k) are not always yours.

The vesting period for company contributions varies from instant to six years, with any unvested amounts being forfeited upon departure.

Outstanding loans

In 2020, Vanguard research found that 13% of 401(k) plan participants had a loan against their account, with an average debt of $10,400.

If you leave your job without paying off borrowed funds, you may need to repay the remaining balance quickly or have your account balance reduced by the amount owed, which will be considered a distribution.

If you don't have enough money to put in a qualifying retirement account and you leave your job before age 55, you may have to pay a 10% early withdrawal penalty. However, workers who leave their company at age 55 or older are subject to special withdrawal rules for 401(k) plans.

Participants have until Tax Day the following year to replace the loan amount, unless major tax law changes took effect in 2018, in which case they have until April 15, 2023, or Oct. 15, 2023, if they file an extension.

It's worth checking your employer's policy on continuing loan payments after leaving the company, as about a third of plans allow it, according to Vanguard.

Reasons to pause

The Rule of 55 allows you to withdraw from your 401(k) without penalty if you leave your job after the age of 55.

If you transfer funds to an IRA, you may forfeit the option to access the funds prior to age 59½ without incurring a penalty.

If your spouse plans to roll over their 401(k) balance to an IRA, you will lose the right to be the sole heir to that money. With the workplace plan, the beneficiary must be you, the spouse, unless you sign a waiver allowing it to be someone else.

If the money is transferred to a rollover IRA, the account holder can designate a beneficiary without their spouse's approval.