American workers change jobs fairly frequently. The decisions you make about how to manage retirement assets when changing jobs can have a direct impact on your future financial health. What are you going to do with your retirement savings?
"Cashing out" retirement plan assets can expose your savings to immediate income taxes and a 10% additional federal tax. On the other hand, there are several different strategies that may preserve the full value of your assets while potentially providing tax-deferred growth.
Well Informed = Well Prepared
Option #1: Leave the money where it is. If the vested portion of the account balance in your former employer's plan has exceeded $5,000, you can generally leave the money in that plan. However, you won't be able to make additional contributions to that account.
Option #2: Transfer the money to your new plan. You may be able to roll over assets from an old plan to a new plan without triggering any penalty or immediate taxation. A primary benefit of this strategy is your ability to consolidate retirement assets into one account.
Option #3: Transfer the money to a rollover IRA. To avoid incurring any taxation or penalties, you can enact a direct rollover from your previous plan to an individual retirement account (IRA).
Option #4:Take the cash. Because of the income tax obligations and potential 10% additional federal tax, this approach could take the biggest bite out of your assets. Not only will the value of your savings drop immediately, but you'll also no longer have that money earmarked for retirement in a tax-advantaged account.
Call us to review your options for managing retirement assets when changing jobs.
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