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By Jason Stipp | 08-14-2009 01:00 PM

What to Do with Your 401(k) Between Jobs

Morningstar director of personal finance Christine Benz outlines the possibilities for your old company plan and how to size up your new one.

Jason Stipp: I am Jason Stipp with Morningstar. July's job report showed some glimmers of hope, but week by week we still see a lot of volatility in initial claims, which tells us that the job market is still very unsettled. One of the things that this can cause is a lot of people in-between jobs or looking for new jobs.

And here to talk with me a little bit about the investing implications of being between a job is Christine Benz. She is Morningstar's director of personal finance. Thanks for joining me Christine.

Christine Benz: Hi Jason. Nice to be here.

Stipp: So if you are laid off or you are looking or a new job, one of the questions that might come up is what should I do with my company-sponsored plan, my 401(k) plan, from my old job? What are my options?

I know potentially one of those options to someone just laid off might be, "Well I should cash it out because I need that cash." So what should I be thinking about if I am between jobs right now with my old retirement plan?

Benz: You are right Jason. That probably is a huge temptation for people eyeing that 401(k) balance, thinking, "I could just take the money and run." People will probably know this, but there are huge implications in doing that. You face a penalty and you also have to pay ordinary income taxes.

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