Are you making a career change or leaving your job? Don’t leave your 401(k), 403(b), or 457 plan behind!
By definition these types of retirement accounts are all ‘defined contribution’ plans, funded with the employee contributions, which are always 100 percent portable when you separate from service with your employer. Some plans offer a matching contribution from the employer based on the amount contributed by the employee. Typically there is a vesting schedule which will vary, depending on the plan, from three to six years before you acquire the right to keep the employer contributions so if you leave your job before you are fully vested you may forfeit a portion or all of the employer contributions to your account.
When you leave a job you typically have four options regarding your retirement account—leave it in the plan, roll it to your new employer’s plan, roll it to an Individual Retirement Account (IRA), or cash it out. Let’s start with the worst choice first; cashing out a retirement plan will add to your taxable income in the year in which the funds are received and, if you are not yet 59 ½ years old, a 10 percent penalty will be imposed as well. Bad choice. So what is a better choice?
First, if the plan allows, you may simply leave your account with the former employer although you will not be permitted to add to it. If your new employer offers a plan that permits rollover contributions another option would be to have the balance rolled into the new plan. Done correctly, this is not a taxable event and will allow your retirement funds to continue to grow sheltered from current taxation.
The last option, and perhaps the most flexible, is to roll your account directly into an IRA which allows you to choose from among the universe of investment options based on your risk tolerance and investment objectives. And if you have multiple IRAs consider consolidating the accounts into one for ease of administration, periodic rebalancing of investment choices, and perhaps reduced fees.
So when you clean your cubicle of your personal belongings leave the paperclips and pens behind but don’t forget to take your retirement plan with you!
Securities and Investment Advisory Services offered through
American General Securities Incorporated (AGSI)
Member FINRA/ SIPC, Member American International Group, Inc.
GFG, LLC is a separate entity from any member of AIG. AGSI does not offer tax or legal advice.
Carol E. Arnott, Registered Representative, Investment Advisor Representative
