Changing Jobs – Should you transfer your 401k in a down market?
If you change jobs during a market correction, you should think twice about pulling your 401k or other retirement plan out of your previous employer’s company during a down market. Here is why. When you transfer money from one retirement plan to another or even to an IRA rollover, your money will usually spend seven to ten days out of the market. Company retirement plans are administered differently than personal accounts or IRA accounts.
In 2012, CNN reported on a study that was done by Allianz. The study was to analyze the potential effects of being in or out of the stock market. The study showed that if $10,000 was invested in the S&P 500 in 1996 and withdrawn at the end of 2011, the ending market value would have been $22,170. If an investor missed the ten best days of the market, the value would have been $11,040 (Fried, Lee, Pofeldt, & Wang, 2012). In the last quarter of 2018, the stock market had several days were the stock market gained and lost several hundred points in one day.
Retirement plan investors who switch jobs may be better off waiting until the stock market stops having such wild swings in the daily stock market value. There is no way to guarantee an investor will have their retirement plan distribution occur on a day when the market is up.
Company retirement plans are administered differently than personal accounts or IRA accounts. There is one of two ways to transfer a company retirement plan. The first method of transfer has the request initiated from your new employer’s retirement plan. Here is the process of moving an individual employee’s retirement plan.
Obtain distribution paperwork from your previous employer.
Enroll in your new employer’s retirement plan. FYI, employers have the option to decline to accept former employer’s retirement plans. However, most employers do take previous employer retirement plan. Ask your new HR department if their company accepts retirement plans transfers.
Your new employer may ask you to complete the distribution paperwork from your previous employer and submit it on your own. The second method of transfer is if your new employer ask you to complete the paperwork and give that paperwork to them, so they may be able to process the transfer.
Once the distribution has been requested, most 401k providers will process the distribution, the day they get the request. On average, it takes one to three days for distributions to be processed.
Once the distribution check is issued, many 401k providers mail the distribution by the US Postal Service to your new employer’s retirement account.
All-in-all 401k and retirement plan distributions and transfers keep your retirement plan assets out of the market about seven to ten days. In periods of extreme market volatility, you should consider waiting until market conditions are more stable before beginning a transfer.
By Van Richards
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References
Fried, C., Lee, A., Pofeldt, E., & Wang, P. (2012, June 25). Give your portfolio a major overhaul. Retrieved from https://money.cnn.com/2012/06/25/investing/portfolio-net-worth.moneymag/index.htm