Don't Lose Your Retirement Benefits When Changing Jobs
- Author: Bradley Bergstrom
- Posted: 2024-06-04
In the past, many people would work one job their entire life and then retire. Those days are gone. In fact, the average person switches jobs every 3.5 years. This means that many people will switch jobs nine times throughout their life. 401K plans are supposed to be portable. However, you risk losing your benefits every time that you change jobs. Women who take time off from their job due to having children are at an even greater disadvantage.
Even if you never missed a day of work, the losses can have a devastating effect on your retirement security. No one can afford to lose their retirement benefits. You worked hard for your money, so you are entitled to it when you retire. The good news is that there are tactics that you can use in order to ensure that you keep the money.
How These Losses Occur
- Your employer may have a plan that requires you to be employed on the last day of the year in order to receive benefits for that year.
- Your new plan may require that you wait a certain amount of time before you can get benefits.
- You can lose your previous employer's contributions to a 401K or 403B plan.
- Your funds may remain in the previous employer's plan.
How to Take Charge
If you plan on leaving your job, then you will need to take the time to carefully plan your exit. This will help maximize your retirement benefits. You will be surprised to find out what a difference one or two days can make in your benefits.
You will need to keep your plan assets in a tax-sheltered vehicle that you can conveniently, economically and effectively manage. Preserve your funds unless you have a financial emergency. If you decide to keep the funds inside of your old employer's plan, then you will need to consolidate or roll them over into an IRA account. Your goal should be to find a tailored solution that fits your needs. This will ensure that you are able to secure your future.
If you are not covered by a plan, then you will still need to save. There are pension plans that are available for workers who are transitioning. If there is a period where you are not covered, then you will need to deposit funds inside of your own IRA. You can also deposit in your spouse's IRA. You can also put the funds in a tax efficient brokerage account.
Make sure that you negotiate with your potential employer if you are being recruited. It does not hurt to ask. Your employer may be more sympathetic than you think.
Additionally, you have the option of taking a cash distribution. You can take all or part of your money when you decide to change jobs or retire. However, this money is subject to a 20 percent tax withholding. For example, if you are taking $10,000 out of the account, then you will need to pay $2,000 in taxes. People who are under the age of 59 1/2 may also be an additional 10 percent taken out of this money.
There are some things that you can do in order to limit the amount of taxes that you have to pay. You can deposit the money into your IRA account within 20 days of receiving it. There will not be any taxes taken from this income, but you will have to pay the 20 percent tax out of your own money. However, if you pay more than what you have to, then you will receive a federal tax refund.
There are other distribution options that may be available. You should get in contact with your plan administrator in order to discuss those options. A tax or legal adviser can assist you with retirement planning. They can also assist you with your financial goals.