In today’s day in age, it isn’t uncommon for an employee to hop from multiple different employers, with the average American changing jobs over a dozen times throughout their career. When making the jump to a new job, it is important to make sure you know how to manage your retirement plans to keep your money working for you in the best way possible.
More Detail
Former employers of workers making a move to a new job are allowed to get rid of their 401(k)s if the cash balance is low enough. They also can take the balance and give it directly back to the worker or they can put the money into an IRA but it is likely to be subject to high fees. Getting a check back from your employer might seem all fine and good but what some people may not know is that if the former employee doesn’t put that money back into either a new employer retirement plan or an IRA within 60 days they will face, a 10% penalty, owe income tax, and lose the benefit of the money compounding, tax-free, for several decades.
Roughly 2% of companies allow their ex-employees with under $1000 in retirement savings to remain in their company’s 401(k) retirement plan, according to Vanguard Group’s “How America Saves” report. So, odds are if you have $1,000 or less in savings, your company will not keep you on their plan when you leave for another job.
Wrap Up
When switching from job to job, it is important to know what will or could happen to your retirement money. It could be a good idea to consider talking to your former or new employer within the 60 days of moving to find out what possible next steps need to be made to save that money you have worked so hard to save. Additionally, it is always good to speak with your accountant when making large moves relating to your money, especially retirement savings accounts as there are a lot of tax strategies to maximize your returns.