Sam Bass

What's your idea of financial security?

Sam Bass
Independence, MO
Tuesday, December 1, 2015

Changing Jobs? Remember Your Retirement Plan Account

Consider your retirement account when changing jobs

You’ve cleaned out your desk and said goodbye to your coworkers, and now you’re eager to start that new job you’ve accepted. But aren’t you forgetting something? What about the assets you have in your employer-sponsored retirement plan account?

If you’re changing jobs, you will probably have to make some choices about the funds that have accumulated in your retirement plan account. Your decision about what to do with the money can have significant tax consequences, so choose carefully.

Leave the money where it is

You may have the option of leaving the funds in your former employer’s plan where they will continue to grow tax deferred until you begin taking withdrawals at retirement. Generally, you’ll still be able to direct how your money is invested (if you had that capability when employed), but you won’t be able to make additional contributions. If you have significant assets in the plan and are comfortable with the investment choices it offers, leaving your funds in your former employer’s plan may be a good idea.

Roll over the money

You can roll over the money in your former employer’s plan to an individual retirement account (IRA) or, possibly, to your new employer’s plan. You can do this without incurring tax liability or an early withdrawal penalty if you follow the rules.

In order for a rollover from your retirement plan account to remain tax deferred, you will have to deposit the entire amount in a new IRA or plan account within 60 days. If your former company’s plan administrator makes out a check to you for the vested balance in your account, he or she is required to withhold 20% for taxes. If you are unable to come up with the money to replace the withheld 20%, you might face a 10% early distribution penalty.

You can avoid both tax withholding and penalties by asking for a direct — or trustee-to-trustee — transfer of your retirement account balance to an IRA or new employer’s plan. With a direct transfer, the distribution check from your old retirement plan is made out to the trustee or custodian of your new account rather than to you.

Rules to remember

After-tax contributions to your employer’s plan, which formerly could not be rolled over to another plan, now may be rolled over to another employer’s plan or an IRA.

To keep your rollover tax deferred, you must roll over the same assets that you had in your retirement account. For instance, if your old account held stock, you must roll over those shares to your new account. You can’t take out the shares, sell them, and roll over the equivalent in cash, nor can you roll over different shares of equal value.

Of course, you can always take a lump-sum payout from your plan. However, not only would you owe taxes and possible penalties on the distribution, you would lose the future tax advantages of your retirement nest egg as well.

Simplify your decision

The decision about what to do with money in a previous employer’s retirement plan can be confusing – especially when you’re facing a lot of other changes in your life. I can help with guidance that takes your overall financial security into consideration, no matter where you’re starting from. Give me a call to find out more.

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