For Mark Roberts’ Use: These days, it’s rare for a worker to stay with the same company for thirty or forty years before finally retiring. Most of us change jobs at least once or twice, and it’s often a terrific decision that leads to better opportunities or a relocation that makes us happy.
But when you do change jobs, what about that old retirement account? You were smart to take advantage of your employer’s qualified retirement plan, but now that you’re leaving the company, you have a big decision to make. Basically, you have four options:
- Leave the money in your former company’s retirement plan (if allowed; some plans won’t allow you to do this)
- Roll the money into your new company’s retirement plan, if the employer offers one that allows rollovers
- Roll the money into an Independent Retirement Account (IRA)
- Take a cash distribution
First of all, the fourth option – though technically available to you – is rarely a good idea. If you use the funds for a non-tax-advantaged purpose, you could cause some problems for yourself. You will probably be subject to a 10 percent early withdrawal penalty, and the money will be added to your taxable income for the year. Of course, the biggest problem is that you’ve now set yourself back, and will have inadequate retirement savings.
So, that leaves the first three options as the more beneficial ones. They will allow you to continue enjoying tax-deferred growth on your money, while preserving the tax-advantaged status of the account.
Changing jobs can be a stressful time, even if it’s a positive change. As you weigh your options with regard to your retirement account, remember that we’re here to help. Give us a call, and we can help you identify the benefits and drawbacks of each choice. Then, you can make a well-informed decision that best supports your retirement goals.