Leaving the stability of a traditional job to embark on a freelance career can be an exhilarating and liberating experience. However, amidst the excitement of this new endeavor, it's crucial not to overlook the importance of your 401k retirement savings account. It's a valuable asset that should not be forgotten or neglected when transitioning to freelancing. It is a vehicle designed to provide financial security in retirement, and by leaving a job, you may be tempted to overlook or disregard it.
In this article, we will explore why it is essential to consider your 401(k) when transitioning to freelance work. We will discuss how to manage your 401k, the implications of leaving it behind, and strategies for ensuring its continued growth and protection. By keeping your 401(k) in mind and making informed decisions, you can create a solid foundation for your freelance career while safeguarding your future retirement.
What is a 401(k) account?
A 401k is a retirement savings plan offered by employers in the United States. It allows employees to contribute a portion of their pre-tax earnings to a retirement account, which can then grow over time through investment. The funds in the 401k are typically invested in a variety of options, such as stocks, bonds, and mutual funds.
For 2023, the 401(k) contribution limit for employees is $22,500, or $30,000 if you are age 50 or older.
What happens if I don't roll over my 401(k)?
Leaving a job can have implications for your 401k retirement savings plan. Here are a few things that may happen to your 401k if you don't roll over your funds after leaving your job:
- Account Closure: Depending on your former employer's policy, they may choose to close your 401k account once you leave the company. This means that you will no longer be able to contribute to or access the funds in that account.
- Limited Investment Options: If you don't roll over your 401k, you may lose the ability to manage and choose how your funds are invested. Instead, your investments may remain in the default options selected by your previous employer, which may not align with your current financial goals.
- Potential Fees and Penalties: Some employers may charge maintenance fees for inactive 401k accounts. By not rolling over your funds, you might incur unnecessary costs that could eat into your retirement savings. Additionally, if you withdraw funds from your 401k before the age of 59½, you may be subject to early withdrawal penalties and be required to pay taxes on the distributed amount.
- Missed Growth Opportunities: Leaving your 401k behind means missing out on potential growth over time. By not actively managing your retirement savings, you might not be benefiting from investment returns or taking advantage of compounding interest.
It is important to note that every situation is unique, and the implications of not rolling over your 401k can vary based on your specific circumstances and the policies of your former employer.
How to rollover a 401(k) for free?
You can rollover your existing 401(k) into a new Rollover IRA that you open with the institution of your choice: Fidelity, Vanguard, Betterment, etc.
A Rollover IRA functions as a retirement account, enabling the seamless transfer of funds from your previous employer's retirement plan into an IRA. It's essential to conduct thorough research on fees and expenses associated with different IRA providers, given that these charges can exhibit significant variations.
How to find a lost or forgotten 401(k) account?
If you are not sure where your 401(k) account is, HiCapitalize is here to help for FREE.
How this works:
- find ALL your 401(k) accounts in one go
- Decide where to move your money (for example, you can open a Fidelity Rollover IRA or a new 401(k))
- Initiate the rollover (you will book a 30-minute call with HiCapitalize to help you step-by-step)- they might ask you for your Social Security Number to verify your identity or a copy of an old 401(k) statement (if you have one)
- Wait for the rollover to be completed (you will be notified when the money reaches your Rollover IRA or your new 401(k) account)
Once the money is in your account, it is crucial to consider investing it wisely for future growth and financial security; otherwise, it will be just sitting there.
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Summary
Even if you are unsure about the whereabouts of your 401k account, there is still hope and a chance to recover your hard-earned money. There are services and resources available that can assist you in finding and reclaiming your lost or forgotten 401k account. Platforms like HiCapitalize offer assistance in locating and consolidating your accounts, helping you gain control over your funds once again. By taking advantage of these services, not only can you retrieve your money, but you can also make informed decisions about where to invest it for future growth and financial security. So, even in the face of uncertainty, there are options available to ensure that your retirement savings are not lost or left idle but instead put to work towards a brighter financial future.
