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How to Handle Retirement Savings When Switching Jobs

AJ Smith

Maybe you’ve changed companies or maybe you’ve decided to switch careers entirely – regardless of the reason, leaving your current job may have more strings attached than you previously thought. Being prepared and understanding all of your options is the best way to protect your finances and yourself. If you have started putting money into a retirement plan, you do not want to lose any tax benefits or investment you have acquired. Consider your specific situation while you explore the below options for managing retirement savings when switching jobs.

Leave the Funds

If your current retirement account has more than $5,000 in it, you can leave the funds in your employer’s plan even when you no longer work there. You won’t be able to make additional contributions to the plan, but your existing savings will continue to grow until you reach retirement age and start withdrawing the money. A possible drawback is that it might be more difficult to keep track of it or you might forget the account exists altogether.

Rollover to Your New Employer’s Plan

Once you know your new job and employer, you can explore the new retirement account plans there. You can roll over the funds directly to the new retirement plan, especially in the case of an employer-sponsored plan. Transferring the 401(k) or 403(b) into the new similar program can help you avoid fees while maximizing your savings. If you conduct a direct transfer of the account balance to the trustee of the new plan, you will not pay income taxes or penalty fees.

Cash Out

It can be very tempting to take the money, especially if you are starting from scratch with a new career or are already in debt. It’s important to remember that this money is already earmarked for retirement and so taking it out means the money will not be serving its original purpose, and you may face a 10% federal penalty and even income taxes. You will also be missing out on future growth of the money. However, if you do need access to money now, it can be a quick fix before you can start your new savings plan, as long as you account for fees and penalties.

Open an IRA

You can establish a separate retirement account independent of your past, current or future employers. Rolling over the money into a traditional IRA allows this money to continue growing tax-deferred.

Moving your retirement assets does not need to be a hassle. It’s important to take the time to understand and plan your rollover so you avoid common rollover mistakes and do not lose any of your hard-earned cash in the process to fees and penalties.

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