So I’ve changed careers, what do I do with my retirement plan?
by Duane J. Silbernagel, Financial Advisor
Changing employers is often a tough thing to do. As individuals, we generally like certainty, the predictability of our schedules. We find comfort in knowing that the paycheck will arrive on time. So whether you left your career on your own terms, or involuntarily, the question still arises about what to do with your company retirement account.
Retirement plans each have their own unique quirks to them. To aid in your sanity, I’m going to cover some general items to consider when looking at what to do with the retirement money from a previous employer.
When you leave a career where you had a retirement account set up through the employer, you usually have four choices: take it, leave it, roll it or transfer it.
Take it – an individual has the choice to “cash-out” the retirement plan. Cashing out your account is rarely a good idea for younger individuals. If you are under age 59½, the IRS generally will consider your payout an early distribution, meaning you could owe a 10 percent early withdrawal penalty on top of federal and applicable state and local taxes.
Leave it – retirement plans each have different rules. These rules can even vary from company to company. Generally, unless your balance is below a certain amount, you will be allowed to leave the funds where they are at.
Roll it – You can roll over your plan assets into an IRA.
Transfer – You can transfer assets to your new employer’s plan, if allowed.
Making this decision can be difficult. You’ve just transitioned, and generally your focus is on making the commitment to the new company and getting to know their systems. Factors to consider when making the decision:
Benefits of the old plan – every retirement plan is different and decisions regarding what to do with your former employer plan should not be made without a thorough examination of the retirement plans summary plan description. In some instances, specific benefits transition with the employee – even after separation.
Cost – a basic cost/benefit analysis should be done comparing plan expenses for the plan you currently have vs. the expenses for the option you are considering rolling the funds into. Just be aware of all expenses, it will allow you to make a better informed decision. Even if there are no costs associated with a rollover itself, there will almost certainly be costs related to account administration, investment management or both.
Investment options – having a large selection of investment options can be a big benefit. Some options may allow you to even self-direct investments into individual securities. 401(k) accounts will generally have a pre-selected range of investments for the participants, while an IRA may have several more potential choices. Depending on the level of interaction that you would like to have, this may or may not appeal to you.
Access to your funds – If you leave your job between age 55 and 59½, you may be able to take penalty-free withdrawals from an employer-sponsored plan. In contrast, penalty-free withdrawals generally are not allowed from an IRA until age 59½.
Decisions like this are very tough to make without all of the facts. The items listed above are just a select few of the considerations that should be given in the case of a former employer plan. If you are not comfortable sifting through this information by yourself, seek help.
If you’d like to find out more about me, have an idea you’d like me to write about or would simply like to contact me visit my website: www.duane.wrfa.com.
Thank you for reading.
This article is meant to be general in nature and should not be construed as investment or financial advice related to your personal situation. Waddell & Reed does not provide legal or tax advice. Please consult with a professional regarding your personal situation.
Duane Silbernagel is a Financial Advisor in Lincoln City, Oregon offering securities through Waddell & Reed, Inc., Member FINRA and SIPC. Insurance products are offered through insurance companies with which Waddell & Reed has sales agreements. He can be reached at (541) 614-1322, via email at DSilbernagel@wradvisors.com.
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