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New Job, Same Goal: Maximizing Retirement Savings. Here's How!

Updated: Nov 14, 2023

Plants growing on stacks of coins from smallest to largest ending with a large jar of coins and a prolific plant.

Transitioning to a new job can be a pivotal moment in your career, and with it comes the responsibility of managing your retirement savings.

Whether you’re just starting out or are on the cusp of retirement, making sure you have a financial plan in place and understanding the options for your retirement savings is essential.

In this guide, we'll delve into the primary choices available when changing jobs and provide valuable tips based on your savings amount, cover rollover options, and address tax implications and penalties, all focused on building your financial security.

Assessing Your Retirement Savings:

Before making any decisions, the first step is to evaluate the state of your retirement savings and your financial objectives by setting clear goals that align with your income, expenses, and savings targets.

What happens to your savings account when you switch jobs is completely up to you and starts with understanding your options.

The amount you have in your current employer-sponsored plan plays a significant role in determining your next move.

With the excitement of starting a new job, you might put your savings account with your previous employer on the back burner and choose to leave the funds in their account. If your balance is below $1,000, your plan administrator can pay it out and may withhold income tax. You can still roll over the distribution within 60 days… more about this below. While this doesn't demand immediate action, it’s essential to monitor your investments and in most cases, you won’t be able to contribute any further funds to this account.

If you want to keep your money growing or add to it through contributions, you’ll need to move it to another tax-deferred account, more commonly referred to as a rollover so it’s important to understand the process. Alternatively, you can cash out your funds which will incur taxes and possibly penalties for early withdrawal.

The Rollover Process:

A rollover is a crucial aspect of managing your retirement savings when changing jobs. It ensures a seamless transition and allows you to preserve the tax-advantaged status of your funds. You’ll need to consider one of the rollover options below:

  • Direct Rollover: This is the most straightforward and tax-efficient choice. You request that your former employer’s plan administrator make the payment directly to your new employer's retirement account or to an existing or new Individual Retirement Account (IRA). This option ensures you don't incur tax liabilities or penalties.

  • 60-Day Rollover: This indirect rollover option provides you with a 60-days window from the time you receive your distribution check to deposit all or a portion of your funds into an existing or new IRA. The IRS requires that a retirement plan distribution to you directly is subject to a 20% tax withholding which can be used as a tax credit. If only a portion is rolled over, you may also be subject to an early withdrawal penalty.

Tax Concerns and Penalties:

When dealing with your retirement savings, it's important to navigate the complex terrain of taxes and potential penalties. There are many more considerations than presented here, so depending on the size of your retirement savings account, it’s frequently best to seek out guidance from a financial advisor, tax professional, or attorney to assist you in the process.

Transitioning to a new job marks a significant juncture in your professional journey and making informed choices is essential.

As your retirement savings represent a significant part of your future financial security, safeguarding and nurturing these funds is paramount.

With a prudent financial strategy and mindset, you can navigate job changes successfully and secure your financial future, no matter where your professional path leads.


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