How should I invest in a 401(k) if I intend to leave the employer?

Question: How should I invest my 401K if I intend to leave my current employer after 1 year?

I intend to leave my current employer in approximately one year and then move my 401k into another 401k or IRA. Does it make sense to just keep everything in a money market fund? Would I have to stay with the same funds for 5 or more years to reap any benefits from the stock market?


You can’t move a 401k into another 401k, but you do have the ability to roll it over into an IRA. Which assets you pick depends on your desired asset allocation and the amount of risk you would like to take. If you are young and aggressive, invest and equities. If you are nearing retirement age and conservative, opt towards bonds and money-market funds.

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4 Responses to How should I invest in a 401(k) if I intend to leave the employer?

  1. randall_senn says:

    I’d go with an S&P 500 index fund.

    Even if you can’t keep it at your old company, the market is likely to recover some before the year is out. We’re near the bottom.

  2. JohnGalt says:

    In a year, market could be up or down. If you are sure you are leaving, just put it in a money market.

  3. src50 says:

    If you’re likely to roll it over in less than five years, I’d leave it in a money market fund.

  4. eternal student says:

    Assuming your funds are currently invested in stocks: The US equity market is down some 40% from the peak it reached in 2006. We don’t how much of these losses will be recovered by the time you move. At rollover, all your positions will be sold and your paper losses will become realized losses. Therefore, unless the markets have recovered significantly within the next year, you are better off leaving it alone in your current employer plan. You can always roll it over at a later time.

    Suppose you have already moved all your 401K investments to cash (i.e money market funds): You can rollover your cash to your new 401K plan or IRA as soon as you are able to. From that point you could move the funds to the appropriate investment vehicles depending on your age and risk tolerance.

    Regarding your question on staying with the same fund for 5 or more years, the short answer is not necessarily. If you are moving sideways within the same asset class. i.e. from a large cap equity index fund to another large cap equity index fund, you will reap the same benefits. So, technically speaking, you can make this sideways move anytime. But given the volatility of the markets, it is better to leave your equity investments in your old 401K until it is a suitable time to do some rebalancing.

    As for your question regarding reaping the benefits from the stock market, the best way to do that is by choosing the broadest possible index fund, and investing consistently, over a long time horizon. Obviously investment decisions need more careful due-diligence. You should consult a financial planning adviser before making any decisions with your hard earned money.

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