The vast majority of retirement savings are generated through employer-sponsored retirement plans—typically 401(k) plans. However, when it’s time to leave an employer, due to a facility closure, downsizing or new professional opportunity, it’s important to thoroughly consider the options for what to do with your accumulated retirement assets.
There are four common courses of action—each with different costs and tax implications, which is why it’s important to work with a financial advisor to evaluate the pros and cons, as well as which route is right for you.
Roll over your assets into an individual retirement account. IRAs are tax-advantaged accounts that avoid immediate tax consequences. They can offer broader investment options than an employer’s plan, but there can be additional fees or expenses.
Keep the assets in your former employer’s plan (if they allow it). Some plans have restrictions for former employees, such as not allowing additional contributions. However, this option allows you to maintain a tax-deferred status, and fees and expenses are often lower than in an IRA. A word of caution, however: it can be challenging over time to manage retirement accounts in multiple locations.
Transfer assets into a new employer’s plan (if they accept them). Some employers require a waiting period before you can enroll, but transferring from a former to current employer-sponsored retirement plan can allow you to keep the tax-deferred status without immediate tax consequences. Housing assets in a single location can also simplify long-term management. Every plan is unique, however, so it’s important to evaluate your new employer’s plan fees, expenses and investment options.
Take a lump-sum distribution. You can gain immediate access to retirement savings from your former employer’s plan by collecting the cash to use at your discretion. However, this option can have significant tax consequences and early withdrawal penalties. Additionally, you’ll miss out on tax-deferred growth potential for these retirement assets in the future.
Whether it’s best to roll, keep, transfer or take retirement assets when changing jobs depends on your unique situation. Contact us at info@truplanadvisors.com for a complimentary, no obligation consultation to help make an informed decision.