Consider Retirement Savings When Planning a Job Change cont'd

Although you may be excited about your new job and benefits, don’t forget about the savings you accrued at your old job. Here are a few options for transitioning your old plan.

Roll over funds to an IRA. An IRA is a tax-deferred individual account that can receive retirement benefits from an employer-qualified plan.

• All earnings will continue to compound and accumulate on a tax-deferred basis.
• IRAs typically offer a wider range of investment choices than employer-sponsored plans.
• IRAs can be especially useful if your new employer imposes a waiting period before allowing you to participate in its plan, if you don’t like the investment options in the new plan, or if it doesn’t offer a plan at all.

Roll over funds to your new employer’s plan. If your new employer's plan accepts rollovers from another employer's plan, you can transfer the funds directly to your new plan.

• To avoid paying taxes and penalties, the transfer must be directly between the trustees—don’t have the check made out to you.

Leave the funds in your old employer’s plan. This may be an option for account values of $5,000 or more.

• Your funds will continue to accumulate tax-deferred.
• You still can move them without penalty to a new employer's qualified plan or an IRA at a later date.
• You will not be able to make any further contributions to the plan, and you are limited to the investment options offered by the plan.

Resist the temptation to cash out your old retirement plan. Considering the taxes, penalties, and long-term detriment to your retirement savings, this option should be considered only in dire circumstances.

• There is a mandatory federal withholding tax of 20 percent, in addition to normal income taxes.
• You probably will have to pay a 10 percent early withdrawal penalty if you’re under age 59½.
• If you do cash out your plan, you still have 60 days to roll over all the money to a tax-deferred account without incurring penalties.

Read more about transitioning your retirement account from the United States Department of Labor.