Changing jobs can be an important time – a window for new chances and opportunities. With those opportunities come pitfalls to avoid concerning 401(k) retirement accounts.

Some employees, when leaving a job to take a position at another company, leave their 401(k) at their previous company – if the plan allows for that. One option is to roll the old 401(k) into one offered by the new job, again, if it is allowed by the plan. The other option, according to Ross Johnson, financial adviser at Edward Jones in Grand Forks, is to put it into an Individual Retirement Account.

“The third thing, which is always allowed, is roll it into a traditional IRA with a financial adviser,” said Johnson, adding that traditional 401(k) plans need to be rolled into traditional IRAs. The same holds true for Roth 401(k) plans and IRAs.

Placing an old 401(k) account, no longer receiving contributions, into an IRA gives the account holder more investment options, which can be personalized to meet an investor’s needs.

Leaving an old 401(k) at a previous employer is not in a person's best interests, according to Johnson.

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“They don’t know how they’re invested,” he said. “They’re not changing with the market and the economy, and it’s losing performance because they don’t have anyone looking after it for them.”

The worst thing a person can do with an old 401(k) is cash it out, which incurs a 10% penalty if a person is younger than 59.5 years old.

“That’s by far the biggest one,” said Johnson. “The issue with that is you pay tax upfront. That’s the No. 1 thing you don’t want to do.”

According to Johnson, it is quite common for people to leave a 401(k) at a previous job, before deciding to bring it to a financial adviser.

“You’d be surprised,” he said. “You'll see someone come in with an old 401(k) from 12 years ago that they just throw away the statements every time they get them, and it's just not invested appropriately for them.”

The process of rolling an old 401(k) into a one at a new job, if it is allowed, is straightforward, Johnson said. The employee needs to bring the statement from the old retirement account to their new job and fill out a form with human resources. HR will transfer the account.

The same holds true when taking a 401(k) to a financial adviser.

“We have our transfer paperwork, and we take care of it all,” said Johnson.

People nearing retirement age and are still employed make up a large number of clients who visit with a financial adviser to roll their 401(k) into an IRA, said Johnson, adding clients feel more confident when they get personal attention to their investments, something that might not happen at their jobs. The law allows people over the age of 59 and a half to make that transfer penalty free.

“We see it all the time …” said Johnson. “Because they are over 59 and a half, they can move it over to an adviser, roll it into a traditional IRA at no cost or penalty.”