Changing Jobs? Don't Lose Your Nest Egg!
If you're changing jobs, and if you have retirement funds held for your benefit in your former employer's retirement plan, it's likely you may have to make some important decisions about what to do with your hard-earned savings. Make a smart choice, and your funds will be protected. Make the wrong decision, and you could see your retirement plans suffer a serious setback.
Knowing your options
Essentially, there are four things you can do with your retirement plan assets:
- Roll the retirement funds over to an IRA
- Leave the retirement funds in the old employer's plan
- Roll the retirement funds into a new employer's plan
- Cash out of the old employer's plan
Evaluating each option
Option 1: Roll the retirement funds over to an IRA
Rolling the retirement assets into an IRA provides you with added flexibility not always found in an employer-sponsored retirement plan. You may have access to more investment options.
And with an IRA, you have portability. This means that you can take your retirement account with you no matter what job changes you make now or later.
Option 2: Leave retirement funds in the old employer's plan
The first thing you should know is that if you have an account balance of less than $5,000, the Internal Revenue Code says your former employer has the right to cash you out of the plan. If you have $5,000 or less in the plan, it's important to understand your former employer's intentions regarding the account.
If remaining in your former employer's retirement plan is an option, review the plan's investment choices. You'll need to determine whether or not this range of investment options meets your retirement planning needs. Also consider whether the plan's fees are reasonable and appropriate for your situation.
Option 3: Roll the retirement funds into a new employer's plan
If you begin a new job and find that your current employer has a solid retirement plan with a good mix of investment choices, this may be an appropriate option. A rollover to a new employer-sponsored plan can help you continue tax-deferred retirement savings and give you one-statement planning.
Option 4: Cash out of the old employer's plan
Sure, you can take the retirement funds as a distribution, but consider that you could lose as much as 50 percent of your retirement savings to taxes and penalties, and that the money won't be there when you retire. This is one option you don't want to seriously consider.
Take the next step...
Simplify your finances! Consolidate your retirement plans with your new employer or roll them over to an IRA. Call us at 1.800.247.8000, ext. IRA (472) or meet with a local expert from The Principal.
