1 You’re not certain what to do next
When leaving an employer for retirement or a new job elsewhere, you’ll want to make a smart move with the savings you’ve built in your 401(k), 403(b), or cash balance plan.
You may want to consider the following options that can help you continue to work toward your retirement savings goal. They do this by allowing your savings to keep growing on a tax-deferred basis and avoid potential tax penalties1 that may occur when withdrawing money in cash. These options include:
- Moving your money directly into a new employer’s plan (assuming your new plan allows this option)
- Moving it to an individual retirement account (IRA) that you select
- Leaving it in your former employer’s plan (again, assuming it’s allowed)
It’s important to know that if you stay in your former employer’s plan, you won’t be able to add any more money or take a new loan from your account. But you’ll still have access to the plan’s entire investment lineup and all the services available through your plan website.
If you stay in your former employer’s plan, you get to decide whether and when to move it to a new employer’s plan or an IRA. There’s no rush, giving you time to thoroughly think through what to do next.
2 You’re happy with the progress you’re making
Given the financial responsibilities we all face, putting a piece of each paycheck away—and watching it grow to hundreds or thousands of dollars—is impressive. If you’ve used any of your former employer’s planning tools or services, you may also have an idea of how far your savings could go in retirement.
Are you satisfied with what you’ve accomplished with your workplace retirement savings? If so, you may want to make your former employer’s plan part of your new and broader retirement savings strategy.
3 You’re satisfied with the service
When you access your account with your plan recordkeeper, have a question, or need help with a transaction, do you get what you’re looking for? Do your plan website and mobile app make it easy to check on your progress and make any desired changes?
As a retirement plan participant, you should always get the sense that your former employer’s recordkeeper values you and your business. If you do, it’s another possible reason for staying invested in your old plan.
4 You’re comfortable with your investments
The investment options offered in workplace retirement plans are selected by employers to fit the needs of their employees. If you’ve grown comfortable with the ones in your former employer’s plan, it could be due, in part, to the careful process your employer used in choosing them.
Do you feel that your portfolio fits your current needs—and that the available choices may suit you in the future, as your needs change? Have you done some research to see if the returns are competitive and the fees are fair?
If both answers are yes, then having continued access to those investments can help justify staying in the plan.
Do you love your current provider—but face an obstacle or two?
You may be perfectly happy with your plan’s recordkeeper and the progress you’re making together. Yet, some plans don’t let departing employees stay in their retirement plan due to either small balances or an across-the-board rule.
And in other cases, people simply want or need more control over their retirement savings than a plan allows former employees.
One option to consider is to see if your current retirement plan recordkeeper offers an IRA. This lets you continue doing business with a company you trust while picking up the additional advantages of an IRA—including the ability to consolidate all your old workplace plan accounts, to contribute new money directly each year, and, possibly, to enjoy a broader investment selection that could include professionally managed portfolio options.
Financial institutions may offer simplified IRA rollovers and fee discounts when you move your savings from a workplace plan that they provide into one of their IRA options.
Consider all the options for your 401(k) when changing jobs or retiring
As you move toward the future, be sure to consider all your available retirement saving options. Take the time to factor in the investments, services, and support you could be getting with your next employer’s plan or in an IRA that you select yourself, as well as what’s available with your previous employer’s plan.
Your employer may offer you education and guidance about how to transition your retirement savings. Take advantage of it. And if you work with a financial professional, be sure to consult with him or her.
Employment transitions can be exciting and stressful, but making a thoughtful move with your workplace plan savings can help keep you on track to the retirement you want.
1 Ordinary income taxes are due on withdrawal. Withdrawals before the age of 59½ may be subject to an early distribution penalty of 10%.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.
There are advantages and disadvantages to all rollover options. You are encouraged to review your options to determine if staying in a retirement plan, rolling over to an IRA, or another option is best for you.
Any tax-related discussion contained in this publication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any tax penalties or promoting, marketing, or recommending to any other party any transaction or matter addressed. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this publication.