While there are a number of things you need to consider and think about whenever you are changing jobs, it is important not to neglect your retirement plan. Sure you need to clean out your desk, find new health coverage, and look for new employment or settle into your new job, but your retirement needs to remain at the forefront of your mind.
Here is a list of decisions you can make and ideas you can use when trying to figure out what to do and how to treat the retirement plan you built up with your old company.
Leave the Money Behind
A lot of 401k plans allow for people to leave their money invested, but while this is the easiest option, it is not the best. You get to essentially keep the money but will still lose all of your previous benefits. This choice only makes sense if you are thrilled with the investment choices that you made and are benefiting from very low fees. In most cases, this is one of the worst decisions that you can make.
Get Away from it All
You may need a vacation from it all in between changing jobs, and you could ask for a straight check and run away from it all with your retirement plan. However, this is not a very well thought out decision seeing as the money you withdraw will be taxed as normal income and will come with a 10% penalty if you are under the age of 59 and a half. Thus, if you have $10,000 accumulated in your retirement plan, you could lose close to $4,000 in fees and be sitting without a nest egg for retirement at all.
Surprisingly, close to half of the people that switch jobs end up cashing out their retirement plan. You are much better off not becoming one of those statistics.
Transfer to an IRA
This decision is often seen as the best one that can be made by financial experts. The move offers extra flexibility for you and allows you to invest in a whole host of stocks, funds, and plans. It allows you to make smart moves and really benefit from the growth of your retirement plan when you invest it properly. It is not always as safe as leaving your money in your current investments, but can go a long way into improving your retirement when done right.
Transfer to a New Plan with your New Employer
Transferring your 401k plan to your new employer is one of the simplest options that you have. It gives you the chance to focus on other matters at hand, but the ease is not worth it if your new employer’s plan does not make sense. Do your homework and make sure that the fees are not excessive and that the new plan utilizes smart investments before making a final decision based on simplicity. Simple investment choices rarely lead to the laid back and simple retirement that you have been dreaming of.
In the end, if you choose one of the 401k transfer options, then you should always consider getting in touch with an IRA expert or the administrator of your new employer’s plan. They will give you information on how to get your money out of the old plan and how to transfer it without having the money sent directly to yourself. If you have a direct check sent, then you need to wait at least two months to open a new account, and 20% of the money will need to be held onto by your old employer.
That means you will need to come up with that 20% on your own and will not receive it back until you make a tax claim at the end of the year.
A better tomorrow will not always come easy, but the work you put into it will be more than worthwhile when the rewards start to come about.