Retirement Planning: As Gen Z Continues To Job Hop, Experts Recommend 3 Ways To Invest Their 401(k) From Previous Employers

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The American dream used to mean you would find a job in your early 20s and stick with it all the way to retirement. However, that hasn’t been the case in a long time. These days, changing jobs is the norm — especially for younger Americans.

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The vast majority of Gen Zers are not wedded to a specific employer, according to a new survey from ResumeLab, which means they need to strategize over what to do with their employer-sponsored retirement plans.

ResumeLab, which surveyed more than 1,000 U.S.-based Gen Z workers, found that 83% of respondents consider themselves “job hoppers.” This applies to more than three-quarters (77%) of respondents with no college degree and 92% of those who hold master’s degrees.

“Generation Z has ignited a paradigm shift in the traditional concept of job stability, embracing a dynamic approach to their careers that often involves frequent job changes,” ResumeLab stated in a Sept. 20 press release. “Unlike their predecessors, they view job hopping not as a sign of instability but as a strategic means to diversify their skill sets, pursue new challenges, and seek environments that align with their values and ambitions.”

In the case of Gen Z, job hopping means switching jobs and employers frequently. According to ResumeLab’s study, only 13% of respondents plan to stay four years or more with their current employer. Here are some other highlights:

  • 4% of Gen Z respondents plan to stay with their current employer for less than one year.

  • 19% say they’ll stay for no more than one year.

  • 43% will stay for two years.

  • 22% will stay for three years.

One thing to keep in mind about frequent job-hopping is that your 401(k) plan hops along with you. Here are three ways to handle your 401(k) when you switch jobs, according to experts:

1. Leave It in Your Old Plan

This seems to be an increasingly popular option for job hoppers. As of early 2023, job hoppers left their money in roughly 29 million 401(k) accounts with former employers, CNBC reported, citing estimates from financial services firm Capitalize. That amounts to roughly one-quarter of the money in all 401(k) plans.

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As CNBC noted, as long as you have $5,000 invested in your employer’s plan, you can leave it there when you leave your job. This simplifies things because you avoid all the paperwork and potential tax consequences of rolling your 401(k) into another plan. It’s an especially good option if your investments have done well in your old plan. The potential downside is that if your old plan has not performed well, you could be losing out on better returns by not moving your money into another plan.

2. Roll It Over Into Your New Employer’s Plan

The advantage of doing this is that all of your retirement money will be in the same place, making it easier to keep up with. It’s an especially good strategy for workers who prefer simple, passive investing strategies, according to Jason Betz, a certified financial planner and private wealth advisor at Ameriprise Financial.

“You’ll still have to line up the investment options, costs and fees to see if you can make a really strong argument for rolling it over rather than leaving it in the old plan,” he told CNBC.

Before moving it into the new plan, however, make sure the plan aligns with your financial goals and is easy to navigate.

3. Roll It Into an IRA

This is a good choice for those who like to take an active, hands-on approach with their investments. IRAs give you more options than 401(k)s because you can choose your own stocks, bonds, funds and other assets. Another bonus is that you don’t have to pay someone else to manage your portfolio. An IRA might be particularly attractive to frequent job hoppers because they don’t have to constantly worry about what to do with their 401(k)s when they switch employers.

There are downsides to this strategy, however. One is that it can get complicated rolling your 401(k) into an IRA. Another is that if you don’t enlist the services of a financial advisor, you’ll have to rely on your own expertise to pick the right investments — and that’s not always easy for those without professional experience.

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This article originally appeared on Retirement Planning: As Gen Z Continues To Job Hop, Experts Recommend 3 Ways To Invest Their 401(k) From Previous Employers