Retirement Savings When You Change Jobs - Take It or Leave It

 


Visitors: 281

When you change jobs, what do you do with the money you have accumulated in you company retirement plan? Tthe average American will have to answer that critical question eight times during a 40-year career. While retirement plan assets are typically as mobile as the workers themselves, nearly 60% of people who change jobs choose to take a cash distribution, despite the drawbacks.

Taxes – Now or Later?

A cash distribution may trigger a 20% federal withholding tax, as well as a 10% tax penalty if you are younger than 59 ½. It will also mean you’ll no longer enjoy the potential benefits of tax deferral that a qualified retirement plan offers. Even small retirement plan contributions may help you pursue large financial goals when earnings are allowed to compound tax deferred over time. You want to maintain your tax-deferred status as long as possible to maximize your gains.

Leave the money in your former employer’s plan.

Your former employer is required to allow you to leave the money where it is, if the balance exceeds $5,000. You can no longer contribute to the account, but you can still decide how the existing assets are invested.

Roll the money into an IRA.

By rolling the money directly into an individual retirement account (IRA), you’ll avoid taxes that you’d incur if you took a cash distribution, plus you are able to enjoy the benefits of tax deferral. An IRA also has greater investment flexibility because unlike a company retirement plan, an IRA gives you the freedom to select mutual funds and other securities that best suit your needs.

Roll the money into your new employer’s plan.

By rolling the money directly into your new plan, you’ll avoid taxes that could eat away at a cash distribution. It'll also simplify your investment paperwork since you’ll only have one set of investments to monitor. Even if you’re not immediately eligible to contribute to the plan at your new job, you may still be able to roll the money over right away.

Make a Choice That Fits Your Goals. If you plan to change jobs, don’t take the money and run. Meet with your investment representative to explore alternatives and consider the potential impact on your long-term financial goals.

Roger Sorensen

America's Financial Guide can be found at =>http://www.Slave2Work.com Subscribe to Money Basics via http://www.slave2work.com/ezine.html

Slave2Work.com - Are you ready for financial freedom ?

(450)

Article Source:


 
Rate this Article: 
 
How to Get Retirement Savings and Income Back on Track
Rated 4 / 5
based on 5 votes
ArticleSlash

Related Articles:

Health Savings Accounts (HSA Medical Plans) Offer Significant Tax, Premium, & ..

by: Andy Devore (September 18, 2008) 
(Insurance/Health)

Retirement Transition Plan - Don't Leave Work (For Retirement) Without These 3 ..

by: Lin Schreiber (August 17, 2008) 
(Home and Family/Retirement)

No Savings at Age 40? Alternate Retirement Options for a Better Retirement ..

by: JT McNaught (July 28, 2005) 
(Home Based Business)

Bankruptcy and Retirement Savings

by: Joseph Devine (July 28, 2008) 
(Finance/Bankruptcy Personal)

Juggling Retirement and College Savings

by: Kristine McKinley (June 05, 2006) 
(Finance/Personal Finance)

Calculate Your Savings and Enjoy a Better Retirement

by: Michael Geoffrey (December 16, 2008) 
(Investing/Retirement Planning)

Think Hard Before You Dip Into Your Retirement Savings

by: Chris Malanga (July 08, 2008) 
(Investing/Retirement Planning)

How to Start Your Own Retirement Savings Plan

by: Sandra Simmons (January 01, 2008) 
(Home and Family/Retirement)

Lifetime Savings with Investment ( Retirement Plans )

by: Susheel Kumar (February 06, 2013) 
(Investing)

How to Get Retirement Savings and Income Back on Track

by: J. Giacoma (December 23, 2008) 
(Investing/Retirement Planning)