Research shows our society is trending toward people switching jobs more frequently. One Bureau of Labor Statistics report from last year, for example, indicates baby boomers born between 1957 and 1964 worked 11.7 jobs between ages 18 and 48.
What does that mean for the average retirement plan? Namely, workers may frequently have to decide where to place 401(k) funds after leaving each employer. Fortunately, with the following guidelines, making smart choices about your financial future need not be difficult:
- Unless you’re facing a real emergency or you’re older than 59.5, avoid taxes and penalties by keeping the money in a qualified account, either an IRA, or your current or new 401(k). A 10% early withdrawal penalty coupled with income taxes can put a significant dent in your balance.
- Compare the fees and investment options that come with your three best options: leaving the funds in your old plan, shifting them to your new 401(k) or opening an individual retirement account. In general, IRAs offer you more choice and diversity of investments than 401(k)’s, but sometimes they can’t match the volume-driven 401(k) deals negotiated by large employers.
- Have several different 401(k) plans? Consider rolling them all into a single IRA or 401(k) for easier tracking; the larger amount may also qualify you for perks through your financial institution.
- Determine your employer’s vesting schedule for any employer contributions. Terminating employment prior to becoming 100% vested in the employer contribution means leaving money behind. This can be an important consideration when considering a job change.
- Starting from the time you receive your 401(k) rollover check, you have 60 days to move it to a new 401(k) or IRA before any tax or penalty kicks in. A better plan is to have your money directly transferred to the new financial institution.
- If you must wait before your new 401(k) kicks in, consider setting aside an amount of money that can be earmarked for retirement, or even funding an IRA. This allows you to get in the habit of funding your retirement, even before you are eligible for your employer’s plan.
To learn more about maximizing your 401(k), contact a Boulay advisor at 952-893-9320 or learnmore@BoulayGroup.com.
File Download: Changing Jobs? Keep Maximizing that 401(k)
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