Changing jobs — Changing perspectives

Let’s face it. Things were a little simpler for your grandad. He probably stayed with the same company, contributing to the same retirement plan for years — building a nice nest egg over the course of a career. Things are a little different today and staying with one employer is a luxury we don’t often have. Whether you’re changing jobs because you want to or you have to, you’ll need to make a decision about what to do with your retirement savings.

Take the money and run

Not so fast! Tempting as it may be, cashing out your retirement plan is rarely a worthwhile strategy. First, you’ll owe income taxes on the money. If you’re in the 28% tax bracket, a $100,000 withdrawal dwindles to $72,000 after taxes. If you’re withdrawing it early (before age 59½) you’ll likely also owe a 10% penalty, trimming your total to just $62,000. On top of those losses, your tax-deferred savings no longer have the opportunity to grow. Not so smart after all.

Know your options

Generally, you’ve got four options when it comes to keeping your retirement plan balance growing:

1. Leave the money where it is: Many employer plans allow you to keep your money invested even after you leave the company. You may want to stay if you’re happy with the current investment selections as they may not be available elsewhere. There might be extra services available through your employer’s plan and you may be able to take penalty-free withdrawals from a plan if you leave the job between ages of 55-59½. Depending on the circumstances, you can take a loan against an employer-sponsored plan and general plan assets have unlimited protection from creditors under federal law while IRA assets are only protected in bankruptcy. And if you’re still working at age 72, you must take Required Minimum Distributions (RMDs) from a traditional IRA, but you’re not required to take RMDs from a current employer plan. While leaving your money in-plan may look like the easiest solution, you’ll be subject to your old employer’s plan rules and be limited by the plan’s investment choices. Obviously, you won’t be able to make any more contributions, so you’ll probably want to enroll in your new employer’s plan too. Now you’ve got two plans to manage. Do this a few more times and it could get complicated, fast.
2. Roll in to your new employer’s plan: If your new employer’s plan allows rollovers, you can transfer your savings into your new plan. You can then start making contributions into your new plan. Keep in mind, employer plans often have various rules you have to follow and you may have limited investment options compared to an IRA.
3. Roll over to an IRA: To keep your retirement savings in one consolidated account as you move from job to job, you may want to consider rolling over to an Individual Retirement Account (IRA). An IRA offers tax advantages just like an employer plan — but you may not be able to contribute as much going forward because IRAs generally have lower contribution limits than employer plans (so continuing to save in your new employer’s plan is still prudent). What you may gain is a broader selection of investments to choose from. Also, if you change jobs again in the future, you can continue to roll over balances into your existing IRA account. Keep in mind, when rolling stock into an IRA, the stock appreciation will be taxed as ordinary income upon distribution rather than at the lower capital gains rates.
4. Cash out: Pretty self-explanatory. You can take the cash if you need to, but keep in mind the points above about taxes, possible early withdrawal penalties, and lack of tax-deferred appreciation.

Build your nest egg as you build your career

You may change jobs once, twice, or ten times, or more. Each time, you’ll want to make a smart decision so you can continue to push towards your retirement goals. However many times you make the change, Voya will be there to help you review and compare all your options and help you understand the tax differences to make the best choices for you.