Changing Jobs

Changing Jobs — Jobs Change but your Retirement Savings Should Stay the Course


Changing Jobs — Jobs Change but your Retirement Savings Should Stay the Course

A generation or two ago, it wasn’t unusual for people to get a job and stay at the same company for an entire career. Today, the global economy is moving rapidly, technology is driving significant revolutions and workers are changing jobs more frequently. A recent U.S. Department of Labor study found that younger baby boomers held an average of 11 jobs between the ages of 18-44.1

When you change jobs, and you have a balance in the retirement plan at your former employer, you will need to make a decision about what to do with your retirement savings.

Don’t take the money and run

If you take a retirement savings withdrawal before age 59 ½ you may owe current income taxes and a 10% early withdrawal penalty.

Tempting as it may be, cashing out your retirement plan is rarely the best strategy. First, you’ll owe income taxes on the money. If you’re in the 28 percent tax bracket, a $100,000 withdrawal dwindles to $72,000 after taxes. If you’re under age 59½ you’ll owe a 10 percent early withdrawal penalty too, trimming your total to just $62,000. On top of those losses, your tax-deferred savings no longer has the opportunity to grow, which could put your future security in jeopardy.

Explore your tax-advantaged options

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

  • Leave the money in the old plan — Many employer plans allow you to keep your money invested even after you leave the company. While this 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 want to enroll in your new employer’s plan. Now you’ve got two plans to manage. Do this a few more times and you can accumulate multiple plans at various firms. It can get complicated.

When you change jobs, you will need to make a decision about what to do with your retirement savings.

  • 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 have various rules you have to follow and you may have limited investment options compared to an IRA.
  • 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 roll over to an IRA. An Individual Retirement Account (IRA) offers tax advantages just like an employer plan. You may not be able to contribute as much going forward because IRAs have lower contribution limits than employer plans. But you will have a broader selection of investments to choose from and expenses might be lower. Also, if you change jobs again in the future, you can continue to roll over balances into your existing IRA account.

Take the next step with your next job

Over the course of your working life, you may change jobs twice, or ten times, or more. At each stage, you’ll want to protect your retirement investment so you can continue to push towards your retirement goals. A quick phone call to ING can help guide you to make the best choices.

1 National Longitudinal Survey of Youth 1979-2010, Bureau of Labor Statistics, U.S. Department of Labor