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Navigating employer retirement plans through career transitions

Know the ins and outs when making a career move.

Gone are the days of staying at the same job with the same company for decades. According to research from the U.S. Department of Labor, Americans held an average of 13 jobs in their lifetime.

People make the move for many reasons, including higher pay, less stress, more opportunity, greater stability – but their employer retirement account often isn’t top of mind. Here are some key considerations for your retirement savings account as you embark on a new professional opportunity.

Understand your options

Before you take action on your former employer’s retirement account, determine if anything needs to be done. If your career move is between companies in a parent-subsidiary relationship, for example, they may be part of a “controlled group,” and could require no action.

If that’s not the case, here are a few options to think about.

  • Leave the funds in the account. First, confirm that your former employer allows this. But, if you choose to do this, will you remember the money is there in 20, 30 or 40 years? Fees and access to investment choices are considerations for this option.
  • Roll funds into a new plan. If you decide to transfer your 401(k) balance to your new employer’s plan, follow the transfer rules exactly. A direct rollover orchestrated by your new employer’s plan administrator is the most straightforward method. Do your due diligence to compare the potential restrictions for the plans offered by your previous and new employers.
  • Cash out the plan. If you’re thinking about taking the money out of a tax-advantaged plan, think twice. Unless you qualify for an exception, you’ll likely pay a 10% early withdrawal penalty plus federal and state income taxes. You’ll also sacrifice the potential growth your investments could’ve earned over time.
  • Open an IRA. Rolling your 401(k) plan balance into an IRA can mean you have access to a wider range of investment options than in an employer-sponsored plan. You can also choose to roll your account into a Roth IRA, but you will be required to pay taxes on the converted amount if it’s coming from pre-tax contributions in a 401(k).

What happens when you retire?

When it comes time to retire and you have multiple retirement accounts, there’s no need to panic. If you have a combination of employer-sponsored plans – like 401(k)s, Roth 401(k)s, 403(b)s, 457(b)s – and IRAs, the order in which you withdraw from these accounts could depend on factors such as your age, tax bracket, account balances and other income sources. Your withdrawal strategy will be part of your tailored financial plan.

With any employer-sponsored retirement plan, you’ll be required to withdraw a minimum amount of money each year, referred to as a required minimum distribution, or RMD, once you reach your required beginning date. If you maintain multiple accounts, familiarize yourself with each plan’s terms, as they may have additional specifications.

Keep in mind you always have options for your retirement savings. When you change jobs, consider them carefully to make the most of your savings.

Source: US Bureau of Labor Statistics