Is a job change in your future? Or maybe you’ve already accepted a new position and are in the middle of transitioning into your new role. If so, this is probably a hectic time for you. And amid the chaos it’s easy to overlook the impact a job switch can have on your retirement savings.
A job change can have serious ramifications on your retirement savings efforts and, if you’re not careful, can throw you off track. Below are a couple of things you may want to keep in mind as you move through your career switch:
What is your time frame for eligibility?
Most employers don’t allow you to start contributing to their retirement plan right away. It’s fairly common to have to wait at least 30 days if not a full year before you can start contributing to your new savings account. On top of that, there might also be a delay on when your employer starts matching the funds you put into the 401(k).
If this is the case, you may want to consider some alternative savings vehicles. For example, consider contributing to an IRA while you’re waiting to become eligible for the new 401(k) plan. You could also try to negotiate a shorter waiting period. The new employer may not grant this request, but it doesn’t hurt to ask. Either way, it’s important to try to avoid a lengthy gap in your savings efforts.
What will happen with your old plan?
Just because you switch jobs doesn’t mean your old 401(k) goes away. If you have a vested balance in the plan, it will remain there until you take action. You may be allowed to keep the balance in the plan indefinitely. However, you may find it difficult to manage investments across multiple accounts.
It’s possible to cash out and take the funds as a lump sum. However, this option can come with some significant downsides. You’ll likely face taxes on the funds you receive, and if you’re under age 59½, you may also face an early distribution penalty.
Another option would be to roll your old 401(k) balance into an IRA. This option lets you avoid taxes and penalties. It also may give you a wider range of investment options so you can implement a strategy that aligns with your needs and goals.
Have you communicated with your new plan administrator?
Did you know there’s a maximum on how much you can contribute to your 401(k) plan each year? In 2017 the maximum limit is $18,000 for people under 50 and $24,000 for those age 50 and older.1 Exceeding these amounts can result in potential tax issues.
That’s why it’s important to talk with your plan administrator. Your new plan administrator won’t automatically know how much you’ve already contributed to your old plan in the year to date. If you’re close to hitting the maximum, you may want to share your prior contribution amounts with your new plan administrator, who can then notify you before you reach the maximum.
Ready to learn more about retirement planning? Contact us at Carstens Financial Group. We can help you evaluate your objectives and needs, and then develop a strategy. Let’s connect soon and start the conversation.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
16356 - 2017/1/18
Carstens Financial Group focuses on providing comprehensive asset management, estate planning and life insurance solutions. Allow us to help you secure your financial future.