Don’t Leave Home Without Your Wallet|Don’t Leave Employment Without Your Retirement Account
Changing jobs can be a busy time. You have many decisions to make after you have decide to leave a job. Even though employee benefits should be the first thing you think about, sometimes it’s the last.
You probably squared away your health insurance benefits, retirement plan and vacation time with your new employer; did you remember to complete your retirement plan account with your prior employer?
When people change jobs they do not know what to do with their retirement plan account, so they leave it with their old employer; that may not always be the best option. You have other options besides just leaving it.
It’s Your Retirement Money|Do What You Want
A common concern among employees when they leave employment is not whether or not to take their prior employer’s wall calendar; the concern is what to do with their retirement plan account.
Should you leave it, take it, roll it or cash it, let’s explore each option.
Your Money|Your Options
You have 4 options when it comes to your retirement plan account at job change time. You may consider discussing these options with your accountant before choosing one.
Option #1 – Rollover To New Employer
Most employer retirement plans are designed to accept rollovers from other retirement plans. Check with the human resource department to confirm. The forms you will need to complete the transfer of monies could come from your new employer as well as your old employer.
Your new employer’s retirement plan may have proprietary forms that the investment company requires. Your old employer has a fiduciary responsibility for your money while it is in their retirement plan, so they will have to sign off on any transfer paperwork.
Have the rollover completed as a trustee-t0-trustee transfer; this way you will not take possession of the money so the IRS cannot tax you on the transfer. If you are under age 59 1/2 and you take possession of the money, the IRS considers it a distribution and you will be taxed accordingly.
Option #2 – Rollover To An Individual Retirement Account
If your new employer does not accept rollover money or you just do not want to invest in their retirement plan, you can rollover the money from your old employer’s retirement account to an Individual Retirement Account. Most IRA’s do allow for employer retirement plan rollovers. If you do not already have an IRA set up, most banks and insurance companies can do that for you.
The same rule applies about taking possession of the money, don’t do it. The IRS considers taking possession of IRA money before you are age 59 1/2 a taxable event.
Option #3 – You Can Always Cash Out
Cashing out your retirement plan is an option, it’s a foolish option, but it is an option that is available to you.
If you are under age 59 1/2 when you cash out your retirement account, you get taxed and incur a 10% penalty.
You changed your spending habits so that you would have money to invest and pay-forward to your retirement years; why would you waste all that effort and money by paying unnecessary fees and penalties? Investors rarely cash out their employer retirement plans.
Option #4 – Leave It
Depending upon your account balance, most employers will allow you to leave your retirement account in their plan. There are of course exceptions. With lower balanced accounts, employers have the option of transferring that money out.
If you are comfortable with the investment options in your old employer’s retirement plan, have easy access to your personal account and are not charged extra fees to have them hold your account it is perfectly okay to leave your retirement account where it is.