At some point during your working years, it is likely that you will change your mind about your occupation or be offered an advancement with another company. Changing direction can be an exciting time, and you might get in a rush. However, don’t make any hasty decisions about your old retirement plan! Eventually, when you finally retire, you might find yourself wishing you had made a different decision regarding that money.
If you change companies, you basically have four options for your former employer’s retirement fund:
- Cash out your retirement fund
- Leave your assets where they are
- Move the money to a rollover IRA or Roth IRA
- Move your funds to your new employer’s retirement fund, if allowed by that plan
Generally speaking,, the first option is not recommended. When you cash out a retirement fund, you lose years of interest that would have accumulated on that savings. You might also trigger some serious income tax penalties.
In most cases, we don’t recommend that you leave the money in your former employer’s plan (the second option listed above). Your retirement strategy will be easier to manage when your money is all in one place. And even if you can’t move the funds to your new employer’s plan, you could gain a wider variety of investment options by rolling the funds into an IRA.
That’s why, in most cases, we recommend going with option 3 or 4 above. If you’re changing jobs, it’s best to move your money to your new employer’s 401(k), or to roll it into an IRA. But because these maneuvers must be performed carefully, in order to avoid significant tax consequences, always give us a call before making your final decision. We can help preserve your retirement savings during this important transition.