Being laid off from Boeing can be a stressful and uncertain experience, especially when it comes to managing your financial future. One of the key assets many employees accumulate during their careers is their 401(k) retirement savings. If you’ve been laid off, it’s important to understand what options you have regarding your 401(k) to make the best financial decisions for your future. Here’s a guide to help you navigate your 401(k) after a layoff:
1. Leave Your 401(k) with Your Former Employer
- How it works: Most companies allow former employees to leave their 401(k) funds in the plan, as long as the balance is above a certain threshold (usually $5,000). Your 401(k) will continue to be invested according to the plan’s options, but you won’t be able to contribute any more funds to it.
- Pros: You can continue to benefit from the employer’s investment options, and your funds will remain tax-deferred.
- Cons: You may no longer have access to certain company benefits (like employer matching contributions), and you may face limited investment options. Plus, you won’t be able to take a loan from the account or make contributions.
2. Roll Over Your 401(k) to an IRA (Individual Retirement Account)
- How it works: You can transfer your 401(k) funds into an IRA. This rollover is usually done directly from your former employer’s plan to the IRA to avoid taxes and penalties. With an IRA, you have more control over your investments and can choose from a wider range of assets.
- Pros: You get more flexibility with your investment choices, including stocks, bonds, ETFs, and mutual funds. IRAs also often have lower fees compared to some 401(k) plans. Plus, you avoid penalties or taxes if done correctly.
- Cons: You won’t be able to take a loan from the IRA (which you could do with some 401(k) plans), and you’ll need to manage your investments more actively.
3. Roll Over Your 401(k) to Your New Employer’s Plan
- How it works: If you start a new job and your new employer offers a 401(k) plan, you can roll over your old 401(k) into the new employer’s plan. This can be done without incurring taxes or penalties if done correctly.
- Pros: Keeping your retirement savings in one place can simplify management. If your new employer offers matching contributions, you can also start contributing again.
- Cons: Your new employer’s 401(k) plan may not have the same investment options or fees as your previous employer’s plan, so it’s important to compare them.
4. Cash Out Your 401(k)
- How it works: You can choose to withdraw the funds from your 401(k) and receive a lump sum. However, this option is usually discouraged unless you have an immediate financial need.
- Pros: You get immediate access to cash.
- Cons: You’ll face significant penalties if you are under 59½ (typically 10%) in addition to paying ordinary income taxes on the withdrawn amount. This could result in losing a large portion of your retirement savings. Additionally, cashing out can harm your long-term financial security, as you’ll lose the benefit of compound growth over time.
5. Consider the Tax Implications
- When rolling over your 401(k) to an IRA or another 401(k), it’s important to ensure that the transfer is done “directly” to avoid tax penalties. If you choose to cash out, the IRS will withhold 20% for federal taxes, and you could owe more when you file your taxes. Additionally, you may face a 10% early withdrawal penalty if you’re under 59½.
- If you’re considering a rollover, ensure it’s done properly. A “direct rollover” ensures that the funds are transferred directly from one account to another, avoiding withholding taxes.
6. Explore Your Investment Options
- After a layoff, you may want to reassess your investment strategy. For example, if you roll your 401(k) into an IRA, you might have access to a broader array of investment options. Take the time to evaluate your risk tolerance and adjust your asset allocation to align with your retirement goals.
7. Consult with a Financial Advisor at Robinswood
- Robinswood is a fee based Advising group that has 17 years of experience navigating Boeing layoffs
- They can also help you review your investment portfolio and suggest strategies for growing your retirement savings, particularly if you’re changing jobs or transitioning to retirement.
8. Keep Track of Your 401(k)
- If you leave your 401(k) with your previous employer or roll it into an IRA, make sure you keep track of your account. It’s important to stay informed about how your investments are performing, as well as any changes to fees or fund options. Also, make sure your contact information is up to date to receive important account information.
9. Review Your Retirement Timeline
- A layoff may prompt you to reconsider your retirement timeline, especially if your new job doesn’t offer a 401(k) or you have to take a pay cut. Take a moment to reflect on how this change impacts your retirement goals and make adjustments as necessary.
Conclusion
Being laid off doesn’t have to mean financial disaster, especially if you make smart decisions about your 401(k). Whether you choose to leave it with your former employer, roll it over into an IRA or new 401(k), or cash it out (as a last resort), understanding your options and taking action quickly will help preserve your retirement savings and secure your financial future.