Changing jobs changes a number of elements in your life, from your salary to your job title to (sometimes) where you live. When confronting all these immediate changes at once, it is easy to discount the less immediate, but just as important matter of your 401(k) plan.
One option is to simply leave your money with your old company. This is not always allowed; if you have less than $5,000 invested, your company is allowed to kick you out of the plan. After all, if you’re not contributing to them as an employee and your money in the system is negligible at best, you’re taking from them without giving much to them.
But if you have more than $5,000 invested this is a viable option. It’s certainly the easiest, and appeals in an “if it ain’t broke, don’t fix it” sense. Your discontinued employment does not affect the quality of the 401(k) plan, so in some circumstances it may be best to just leave your money where it is.
However, there are some very real reasons not to do this. When you leave your retirement money with your former company, you are placing a lot of faith in that company. You’re effectively saying through your actions that while you do not want to (or are unable) to work for them anymore, they are still welcome to manage your financial future for you.
What’s more, you can’t predict the future. Your former company may be around tomorrow, the next day, and twenty years from now. On the other hand, it may not. Keeping your 401(k) money with an old employer spreads you quite financially thin. You’ll have too few eggs in too many baskets, which is a difficult situation to manage in the best of times.
Your new company will probably be loath to contribute to someone else’s 401(k) as well. So, if you want to take advantage of your new employer’s 401(k) matching funds or other perks, you’ll need to use their plan. Fast-forward ten years in the future, and instead of having a lot of money in one fund, you’ll have a little bit of money in two or more funds. Again, too few eggs in too few baskets.
Having said all this, it is important to note that leaving your 401(k) money in an old employer’s account is not without merit. It’s particularly effective as a temporary solution. As was mentioned above, changing jobs creates a lot of upheaval in your life. One way to curb this upheaval is to leave your 401(k) in one place until things calm down – just take care not to forget about it.
2010 Contribution Limits
The 401(k) contribution limit for is $16,500 for those under 50 years old. For anyone between the ages of 50 and 59 ½ years old you also have the option of contributing an additional $5,500 as a catch-up contribution.The IRA contribution limit for is $5,000 for those under 50 years old, with a $1,000 catch-up contribution option for those between 50 and 59 ½ years old.