Don’t Forget Your Retirement When Changing Jobs

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Not only did the pandemic jumpstart the reality of remote jobs, it made employees realize there were more options in their current job market. Introducing the Great Resignation, one of the most unusual movements in the American job market, causing employees to take action and create a new future for themselves after re-evaluating their opportunities.

But are the newly migrating employees looking at all aspects of their future, such as retirement plans? Does the change in jobs put their retirement at risk? There are typically four choices that one can make with their retirement savings when changing careers. The decision should certainly be made carefully.

Retirement Advice: Cash Out

One of the more simple options available for employees: Cash out your retirement plan from the previous job and receive the amount you’ve accumulated. Although, you may run into some problems depending on the amount of money.

If the total amount is less than $1,000, the employer will reimburse in full without penalties (not including taxes). Most companies will send it back within 60 days after it is taken out. But, when the balance is between $1,000 to $5,000, the company may not refund the funds to you. Instead, the funds would go to a new retirement account, which is usually another IRA under your name.

In either situation, the cash-out option does not exclude penalties.

Keep Your Old Plan

Now, if the retirement account balance exceeds $5,000 or more, some will keep it under their old employer. It is impossible for your employer to move those funds without your permission.

In many circumstances, this may not be the best strategy because your past employer stops making contributions to that fund. There will also be annual limits you on how much you can contribute. On top of everything, all your investments and where they are allocated is managed by your employer.

As mentioned, you might not even have this choice if your balance is between $1,000 and $5,000 — your old employer must direct your funds to a new IRA.

Retirement Advice: Roll Over to the New Employer’s Plan

One of the easier solutions in theory is to roll your old retirement fund into the one your new employer offers. Although on the surface it does seem easier, there are still some penalties that can come with it.

“Your new employer might not allow transfers from an old 401(k),” says Ty J. Young, Chief Executive Officer of Ty J. Young Wealth Management. “If they do, you may need to fill out a pile of paperwork. There’s a lot of red tape to sort through, depending on how much you’re transferring, your account history, tax status, and the investment choices you have at the new organization.”

Some other penalties to think about is if the new employer charges higher account fees and doesn’t offer many options for direct management. Ultimately, you’re leaving the control of a fund to a manager you likely don’t know.

Roll Over to a Self-Directed IRA

If your balance is more than $1,000, the best and final choice may be changing your account balance to a separate, self-reliant IRA under your name. This is one of the top predictors in improving your financial health score.

The biggest change and benefit is total control. No more being subjected to someone else’s plan for your future. Total control over your retirement plan, investments and fund allocation.

Many companies will limit your investment in the traditional stocks, bonds and funds; but with this choice, you get to invest in nontraditional assets such as life insurance, non fungible tokens (NFTs), cryptocurrencies and more.

This offers more tax advantages than traditional IRA’s. With a self-directed Roth IRA, qualified distributions from the account are tax-free.

With this movement unfolding and allowing employees to take back control and grow to their full potential, the self-managed IRA allows them to do the same: explore their opportunities and take back their control.

On the date of publication, John Rampton did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

John Rampton, the founder and CEO of Due, is an entrepreneur and connector. While recovering from a serious construction accident when he was 23, he studied how to make money work for you, not against you. He has since written many articles about finance, entrepreneurship and productivity.

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