Real estate signs are popping up like dandelions, spring is in the air and people are on the move. Moving for a new job is one reason for the mobility. How often are people moving? According to the Bureau of Labor Statistics people change jobs every 2.5 years between the ages of 18 and 48. In another study, 71% of the working population is currently looking for a new job. With the unemployment rate below 4%, employees are feeling embolden to leap to a new job.
A new job is exciting. However, it does raise questions about your former retirement plan. Should you take it with you or leave it behind? Here are a few suggestions –
- Leave it. You have the option to leave your assets in your former employer’s plan. You don’t have to make any changes. It makes sense to leave it in the plan if it has several low-cost investment choices, and you’re happy with the performance. An advantage of this decision is you don’t have to decide on when or where to move your assets, it’s a known quantity. One downside of leaving it behind is that you’ll no longer be contributing to your account or receiving an employer match.
- Roll it into your new plan. If your current employer allows for in-coming rollovers, you can transfer your old plan into your new one. This could be a good choice because you’ll be able to give your new plan a boost especially if it has a good line-up of low cost investment funds. However, if it has limited choices or expensive funds you’d be wise to look elsewhere.
- Rollover your assets into an IRA. An IRA rollover makes sense if you want more control over your investments. An IRA will allow you to invest in a plethora of investments – almost unlimited. In addition, you’ll have the ability to control your costs and trading activity through your investment selections.
- Cash out. Cashing out of your old 401(k) is an option – but not recommended, particularly if you’re under the age of 59.5. Taxes and penalties will eradicate a big chunk of your assets if you remove them from your plan. If you take this path the IRS will benefit greatly.
In addition to your rollover decisions, another issue that needs to be highlighted is your future retirement balance. Jumping from job to job will hinder the growth of your retirement assets. Some companies have a waiting period before they’ll allow new employees to join their plan, typically six months. Meaning, if you change jobs every 2.5 years for 30 years, you won’t be able to make a company contribution for six years, or 20% of your working years and that’s a lot of downtime.
“Everybody has talent, it’s just a matter of moving around until you’ve discovered what it is.” ~ George Lucas
May 21, 2018
Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.