HILTON HEAD ISLAND, SC– More people change jobs than ever before. The average American worker makes 12 employment moves before retirement, according to the Bureau of Labor Statistics.
With all those transitions come important decisions, and high among them is what to do with their 401(k).
Numerous financial experts say one thing a person usually shouldn’t do is leave their 401(k) behind with that former employer. Some 401(k) accounts are “orphaned” or abandoned every year either by their owner, former employer or plan administrator.
“It’s like cleaning out the old office; make sure to grab everything that’s important,” says Peter J. Strauss (www.peterjstrauss.com), an attorney, captive insurance manager and author of The Business Owner’s Definitive Guide to Captive Insurance Companies.
“When a person leaves a job and leave their 401(k), failing to roll it into a new retirement account, it’s leaving money in a drawer, and worse, with compound interest growth.”
Because of the tax penalty for early withdrawal, it’s not usually a good idea to cash out the 401(k) before age 59½. But Strauss says the advantages of having a 401(k), keeping it mobile with job moves, and continuing to grow it are vital for personal financial growth and retirement. He lists three things consider about that 401(k) when changing jobs:
The employer match
“That can be a great windfall, but it’s important to make sure the matching money is vested prior to that departure,” Strauss says. “Otherwise, if a person didn’t work there long enough and the match hadn’t vested, they are not maximizing the savings.”
So when choosing to leave a company, Strauss says it’s important to consider the timing. “Find out if all the 401(k) contributions have vested, so a person makes sure to get a bigger bang for their buck,” he says. “It may be worthwhile to stick around a little longer to make sure to get the entire company match to take with the exit.”
Rolling into an IRA
An IRA offers more investment choices than 401(k) plans do, Strauss says. And typically, IRAs have lower costs to operate because they don’t carry the administrative fees that 401(k) plans do.
“But remember, just like rolling a 401(k) over into a new company, a person needs to execute the transfer properly, or else they will owe taxes and fees.”
Roll into new plan
This is the simplest option of moving a 401(k) after a job move. The funds remain in the same place and continue to grow. A bonus: 401(k) plans allow a person to borrow more than an IRA for a first home.
“It’s a sense of comfort having a 401(k), and better, having one that’s not stagnant,” says Strauss. “If a person, one day, goes from ’employee to employer’ and runs their own business, they will have a heightened appreciation for it because of what it means to the employees. If a person is making a job change, they should not forget the retirement assets they have worked so hard for throughout their career.”
Peter J. Strauss is an attorney, captive insurance manager and author of several books, including most recently The Business Owner’s Definitive Guide to Captive Insurance Companies.
He is the founder and managing member of The Strauss Law Firm, LLC, on Hilton Head Island, S.C, and also the founder and CEO of Hamilton Captive Management, LLC. A graduate of the New England School of Law, he holds an LL.M. in estate planning from the University of Miami and speaks regularly at public seminars.
For more information, visit www.peterjstrauss.com.
This article provided by NewsEdge.