Guide to Managing Retirement Accounts When You Leave a Job
Ever wondered what to do with an old retirement account from a previous job? Laura answers a listener question and explains the options when you leave an employer for any reason. Find out the best move to make and manage your retirement money for success.
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Katia A. says, “I’m 26 years old, make $38,000 a year, and plan to retire well, hopefully before I turn 60. I had a 403b at my previous job and am confused about what to do with it.
Should I do an IRA rollover with the same brokerage firm or a different firm, or transfer it to the 401k at my new job? Also, should I use a Roth or traditional retirement account?”
Thanks for your question, Katia. If you’re like most people, you’ll change jobs many times over the course of your career. One of the best features of a workplace retirement plan, such as a 403b or 401k, is that you can take your money with you when you go.
In this post, I’ll explain the pros and cons of four options for managing your retirement account when you leave a job for any reason. I’ll recommend the best move to make and explain the rules so you know exactly how to manage your retirement money for success.
Free Resource: Retirement Account Comparison Chart (PDF download) - get the rules for the most popular retirement accounts
What Is a Retirement Rollover?
Investing money through one or more retirement accounts is wise because they give you fantastic tax savings. Those savings allow you to grow a much larger account for retirement than you could by investing through a taxable, non-retirement account.
So, if you have a retirement plan at work but aren’t participating in it, now’s the time to enroll! Contribute as much as you can, even if it’s just a small amount. Make a goal to increase your contribution each year until you’re putting away a minimum of 10% to 15% of your pre-tax income.
And if you don’t have a retirement account at work or are self-employed, don’t worry. There are great retirement options for you as well. Read or listen to these posts to learn more:
- 5 Retirement Options When You’re Self-Employed
- 6 Retirement Accounts You Should Know About
- How to Use a SEP-IRA Retirement Plan
Don’t make the mistake of thinking that once you leave a job with a 401k or 403b that you can’t continue getting retirement tax breaks. Doing a “rollover” allows you to withdraw funds from your old retirement plan and transfer them to another eligible retirement account.
When you roll over a retirement account, you don’t lose any contributions you’ve made or the investment earnings that may have accumulated over time. And if you’re vested, you don’t lose any money that your employer may have put into your account as matching funds.
The main rule with a retirement rollover is that once you start it, you must complete it within 60 days. If you miss this deadline and are younger than age 59½, the transaction is an early withdrawal, subject to income tax, plus an additional 10% early withdrawal penalty.