By, Lori Brand, Managing Director of BetterWealth Financial Strategies For Women.

Do you have an old 401-k plan from a previous job? If yes, chances are you’re leaving money on the table or worse losing money.

It is estimated that approximately 45% of people with old 401-k plans either cash them out after moving to a new job, or worse, leave them on deposit with their old employer.

Cashing out of course, is never a wise option as you are subject to taxes as ordinary income in addition to a 10% tax penalty. If you owe or come close to breaking even at tax time, this move will cost you more with Uncle Sam when you do your taxes. If you get a refund, your refund will be smaller because you’ve just effectively increased your income (without really doing so) and let’s not forget that 10% tax penalty.

Dollar cost averaging is attractive with a current 401-k plan, as when the market drops you are purchasing shares at a discount, and when the market goes up, your shares are worth more. With an older plan you can no longer purchase (or contribute) to that plan, so no dollar cost averaging for you.

Leaving your old 401-k on deposit with your old employer comes with its own set of challenges, one of the most significant being that you are no longer able to contribute to that plan. In light of recent market volatility, if your 401-k is heavily weighted in equities, (as most are), your inability to contribute means you can no longer dollar cost average new shares at a cheaper price. Your shares are simply going to lose value. You will have to wait for the market to rebound to recoup losses. Unfortunately no one can predict when that will happen or if it will happen in enough time to plan a comfortable retirement. It is for that exact reason experts tell you to reduce market holdings as you get closer to retirement.

Another disadvantage to leaving an old 401-k plan with a previous employer is you are less likely to re-visit, reallocate and re-balance your holdings. Have your goals or objectives changed? Are you closer to retirement? Most likely all of the above, yet your plan has not been updated to reflect your time horizon for retirement. If there is one thing financial advisors agree on, it’s that your exposure to risk should be reduced the closer you are to retirement.

So what options do you have with an old 401-k plan? One of the biggest mistakes you can make with an old 401-K plan is to fall into the “do nothing” trap. Talk to a financial advisor, who will help you move a 401-k to an IRA and suggest ways to fund that IRA that will match your financial objectives and time factors. A consultation will cost you nothing but leaving it sit will cost you everything!

There are many terrific options for a 401-k, talk with your advisor today to come up with a strategy to fit your goals and objectives.

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