We’ve already covered the basics of a 401(k) and thought it would make sense to answer a few common questions.
What to do with 401(k) when switching jobs?
When you leave your job, you may not be sure what to do with your 401(k) and what your options are. According to Quicken, you essentially have four options: (1) Keep the money in your employer’s plan; (2) move the money into a new employer’s plan; (3) move the money into an individual IRA; or (4) cash out. The link provides you with further details on the pros and cons of each option, but in general moving the money into an individual IRA seems to make the most sense as it gives you a much wider range of investment options than your prior or future employers’ plans probably provided. We’d suggest doing that if you don’t mind tracking separate accounts. Just DON’T CASH IT OUT!
Do my employer’s matching funds go towards my (as of 2017) $18,000 contribution limits?
No, not really. There is a combined contribution limit, but unless your employer’s match is abnormally generous (or you’ve got your own small business), it’s unlikely you’d reach that limit.
Are there phase-out income limits for 401(k) contributions?
No, you can’t currently make too much to contribute to your 401(k).
Should I contribute early in the year and relax later? Or is it ok if I don’t contribute now, and catch up later?
Probably not, at least not to the extent you’re trying to maximize the match for most employers. In our personal experience, most employers match for contributions on a paycheck-to-paycheck basis (as opposed to looking at your yearly contribution total). If you contributed all of your 401(k) contributions in the last half of a year, you’d be missing out on half of your available match.
Is there a way for me to withdraw my 401(k) savings early without incurring a penalty?
Yes, there are some limited exceptions, including issues related to healthcare and health insurance, buying a home for the first time, disability, and others.