While a 401(k) or a 403(b) are hardly the only options you have in planning for retirement, they are the most common ones most people are familiar with. Even novice savers can tell you that these retirement savings plans are good ideas but too many do not know the ins and outs of what they can do with these plans if they change jobs. While you are always better served to seek a professional for individualized guidance tailored to your unique needs, there are some basics that you should know about these plans.

You might know about some of the tax benefits or about the percentage your company will match your 401(k), but do you know the four moves you can make with these plans if you change jobs? You can leave your money in the plan, roll it over into an individual retirement account (IRA), transfer it to your new employer’s plan, or you can withdraw your money and just spend it as you please. Let me walk you through some of the pros and cons of each of these options.

Leave Your Money Where It Is

-On the plus side, there are federal laws ensuring that your plan is monitored by a fiduciary. You’ll also have more protection from creditors than you would in a rollover IRA, and there may be other benefits as well.-Because the plan is managed by someone else and you no longer work for that employer, drawbacks may include diminished ability to control the plan, a limited range of choices for your investments, fees within the plan, and limited access to help with the plan.

-Because the plan is managed by someone else and you no longer work for that employer, drawbacks may include diminished ability to control the plan, a limited range of choices for your investments, fees within the plan, and limited access to help with the plan.

Rollover into an IRA Account

-Choosing to rollover your employer plan account can benefit you because it may afford you greater choice and control over how your money is invested. You’ll be able to get professional advice tailored to your specific needs and have potentially more flexibility for withdrawals. This move may also allow you to consolidate other retirement plans into one place which may help simplify your recordkeeping. This option offers portability since you can easily transfer the money to different financial institutions without penalty should you want to change service providers.

-While there are some people who can benefit from the added freedom of the rollover option, you might be at a greater risk than if there were a fiduciary monitoring the plan. There might be more fees for advice and other investment services. Additionally, there could be taxes and even tax penalties if you needed to withdraw money from your IRA account. And, you don’t have the same level of protection against creditors as you would in an employer plan account.

Transferring Plan to New Employer

-If you take a new job and the employer has a retirement plan, you may be able to rollover your old plan into your new employer’s plan. Depending on the plan, you may have lower costs for investment options and services. This can be a simple transfer process and there are no tax consequences if the transfer is handled properly. You’ll have better creditor protection on your retirement savings than in an IRA account and you may not be obligated to take minimum distributions while you are working.

-Like leaving your money in the old employer’s plan, there might be a limited amount of control over your money in terms of investment options available to you. Your new plan may not have as good or as inexpensive options as your previous one. These are all things to check out before you decide to transfer your plan.


Taking Money from Your Account

-While some may see taking the money as a good option, it is generally not for most people. While it is true that you’ll have the freedom to use the money as you see fit, depending on your age and other income, you may have some major income tax issues that could take a heavy bite out of your retirement savings. Unlike the first three options, this one will open you up to current taxes – federal taxes, possible state and local taxes, and an early distribution tax penalty if you are under 59 and a half years old. Beyond these income taxes and penalties, you will also have emptied your retirement account and possibly short changed your future retirement.

I hope this boosts your retirement account knowledge, but your best option is to seek out help from a qualified financial professional that can focus on your specific financial needs and offer help to choose the options that best suit you. If you would like to see how your retirement planning measures up overall, see my free retirement self-assessment quiz: http://erichutchinsonfinancial.com/retirement-quiz/



The opinions expressed in this commentary are those of the author and not necessarily the views of United Capital Financial Advisers, LLC. Certain statements contained within are forward-looking statements, including, but not limited to, predictions or indications of future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. This material is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. United Capital does not warrant the accuracy or completeness of the information. The commentary is intended for information purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. Past performance doesn’t guarantee future results.


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