Don't leave your savings behind
After you changed jobs or retired, you probably packed up personal items and took them with you, from your coffee mug to your paperweight. But what about packing one of the most valuable items—retirement funds?
"Moving retirement funds into an Individual Retirement Account (IRA) or transferring them into your new employer's plan can make your life easier," says Jason Heffner, senior financial services representative for the Principal Financial Group® in Overland Park, Kan. "It gives you greater convenience and potentially more options and flexibility for managing your retirement savings."
Having fewer accounts also gives you a better overall grasp of your savings and where you stand in relation to retirement. The fewer accounts you have to oversee, the more manageable your overall savings can become.
You generally have four choices for how to handle the savings in your former employer's retirement plan. You can:
- Roll over the balance into a new employer's plan;
- Roll over your assets into an IRA;
- Leave your savings in the plan; or
- Withdraw the money.
The first two options can offer major advantages.
Reasons to consider a rollover
- You'll save time. Having fewer accounts to keep track of can make it easier for you to make changes, track performance, manage your asset allocation strategy and rebalance retirement funds.
- You'll save money. If you cash out an employer-sponsored retirement plan before age 59½, you're likely to owe a 10 percent IRS penalty. Roll over your funds to an IRA or consolidate them with your new employer's qualified plan, and you can avoid the penalty.
- Your tax advantages will continue. If you cash out you'll owe taxes on your pre-tax contributions as well as your earnings—and 20 percent will be withheld to cover them. But by transferring directly into an IRA or your new employer's plan, no money will be withheld, and your tax-deferred savings will continue until you withdraw money in retirement.
- You'll have greater control. Rolling over retirement funds now can help you avoid being affected by changes your former employer may make to its retirement plan.