The Great Resignation & Your 401(k)

There have been many changes since the Covid-19 pandemic began. One of the most significant changes has been the job market, specifically the increase in job resignations and remote positions. In what is now being called The Great Resignation, more people quit their job in November 2021 than in any time in recent history.

For weekly insights, follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment.

Over 4.5 million workers resigned from their job (an average rate of 3%). Alabama’s resignation rate was around 3.7% versus our neighbor, Georgia, with the highest resignation rate of 4.5%. The primary factor for this increase in resignations was driven by opportunities for employees to work remotely. Employees enjoyed working from home while in quarantine and realized they wanted a job more geared towards working remotely. As a result, some decided to start their own business while others found companies that allowed working-from-home flexibility.

Part of the catalyst for quitting was the influx of various government programs such as the trillion-dollar-plus American Rescue Plan. Another big driver has been the tightening of the labor market, giving rise to seeking new employment for higher pay.

With these changes comes a big question: What should you do with your 401(k) from your old employer? Here are three options:

  1. Roll-over to your new employer’s 401(k) plan. This can be a good choice assuming you are happy with the investment choices of the new plan. Be sure to get a detailed schedule of all fees charged against your investments and contributions to the plan.
  2. Roll-over to an IRA. This is my preferred choice for most people because it offers the greatest flexibility. By choosing a discount broker, such as Charles Schwab, you have virtually unlimited investment options. If you choose option #1 above and change your mind, you cannot later roll-over to an IRA.
  3. Cash out your 401(k). This is typically the worst option because you will incur income taxes on the funds, an additional 10% federal penalty if you are under 59 ½ years old, and you lose the future tax-deferred growth of your investments.

Be sure to consult with a financial planner/advisor before making any decisions with your 401(k). What you do now can affect you in your future investments.

 

professional photo of certified financial planner Stewart Welch wearing black suit and red tie

Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States.  He is the author or co-author of six books, including 50 Rules of Success J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaireand 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch GroupConsult your financial advisor before acting on comments in this article.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC –(“Welch”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. Please remember that if you are a Welch client, it remains your responsibility to advise Welch, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.welchgroup.com. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s website or blog or incorporated herein and takes no responsibility.