Is it possible to train your retirement plan? We think so.
Maybe you’re about to change companies or change your career completely. Whatever change is afoot, we don’t have to remind you how important it is to keep an eye on your retirement funds during tumultuous times.
Assets for your retirement should be able to respond to any possible changes with ease. All it takes is a little training.
If you’re changing jobs and have an existing retirement plan, such as a 401(k), you should already have a Summary Plan description in your possession. This will describe your retirement plan and the options available to you, regarding your old (or, soon to be old) company’s plan. You will want to share this document with a financial professional so the two of your can decide what option fits you best.
Many companies have restrictions on what can and can’t be done with your retirement fund, especially after you leave the company. As with most financial planning, a little education goes a long way and knowing the details of your plan will help make the transition a bit smoother.
Generally, you’ll have three major options for your retirement fund when changing jobs:
- Sit: You can withdraw your investment savings and keep the money as a lump sum.
- Stay: You can leave the money where it is
- Rollover: You can “roll over” your retirement savings into another retirement plan or an IRA.
Each option has its pros and cons. Depending on your situation in life and in your career, you will want to consult a financial planner and choose the option that makes your feel most comfortable.
If you choose to withdraw your money in a lump sum from a pervious employer’s retirement fund, you must pay taxes on the money you withdraw. On top of those taxes, your employer is required to take a 20% withholding from your lump sum, and if you are under age 59 ½, you may also be forced to pay a 10% penalty tax. You may roll over the lump sum and avoid the penalty provided that you deposit the funds in an IRA or other employer plan within 60 days. You will have to make up the additional 20% withheld by your employer. The 20% withholding will be deducted from your reported income when your taxes are due.
Leaving the money in your current plan is on the option when changing jobs or companies. However, you must also be aware of any possible regulations and restrictions your old company has placed on your money in that retirement plan.
If you choose to roll it over, your may have the option of rolling your assets into either an IRA, a Roth IRA, or your new employer’s plan. However, to avoid paying taxes and penalties, you should have these assets transferred directly to another IRA custodian. Once a Rollover has been put into a Roth, you cannot roll the Roth into another employee-sponsored retirement plan.
These are just the basic options you may have when changing careers and retirement plans. Deciding what do to with your retirement savings when changing companies or careers is one of the most crucial decisions you make. It is important to consult your tax professional before taking a distribution. By working with a financial professional, they’ll make sure you’re aware of the many options available to you. And by being prepared in advance, you’ll know when it comes time to confront change, you’ll be ready.
For more information on this and other financial topics or for a no-cost consultation, call Brad Kamman at 205-328-2322 or toll free at 1-800-641-3870.
Securities offered through LPL Financial, Member FINRA/SIPC, Advisory services offered through RFG Advisory Group, LLC, a registered investment advisory firm. Not NCUA insured. No Credit Union Guarantees. May Lose value.