Remember to Take Your Retirement Account with You When You Quit (Change Jobs)

by Emily Guy Birken · 6 comments

It wasn’t that long ago when a career would begin and end in the same workplace. For our parents and grandparents, staying with one job throughout the working years would not only foster a sense of job security, but it would also ensure a retirement. Those days are gone however, and with it the ability of an employee to leave retirement in the hands of his employer. In the new millennium, the average worker will change jobs every 4.4 years. This can lead to some confusion, apprehension and apathy when it comes to handling retirement accounts. And if you changed jobs at any point in your career without taking your retirement accounts with you, you might have completely forgot about them—risking a chance that it might be very difficult to recover your assets after decades of abandonment.

Bottom line: consolidate your retirement accounts. There are two main avenues for consolidating retirement accounts: rolling your previous savings into your new employer’s retirement program or funding an Individual Retirement Account (IRA).

Rolling Over Your Account

The best part of being able to roll over an old 401(k) or 403(b) into a new job’s retirement program is convenience. As part of your orientation in your new job, you should have the opportunity to chat with your friendly neighborhood Human Resources director to get your old retirement rolled over. In addition, many jobs offer matching funds up to a percentage of your salary when you enroll in their retirement program. It has been said before and it bears repeating: always maximize the employer matching. Doing otherwise is like turning your nose up at free money.

Some investors are concerned that employer retirement programs do not offer enough choices in investment options. It is up to you to decide whether the dozen or so funds available to you through your employer will meet your specific needs. However, remember that the best retirement program is one that you actually put money into. Convenience trumps choice for many people, and your retired self will be thankful for whatever you do now.

IRA

There are multiple reasons for choosing to roll your retirement into an IRA. First and foremost, this is the only option for some individuals, as not all employers offer retirement programs. IRAs also offer a great deal of choice and flexibility, as you will have literally thousands of investment options to choose from, making it easy to tailor your retirement account to your needs, risk tolerance and personality.

With a little research, you can easily find an IRA that will work for your specific needs. Both Schwab and Fidelity, among other investment banks, offer information on IRAs on their websites and make the process a breeze. They even offer what they call “rollover IRAs” specifically created for job changers.

If you are a little intimidated by the idea of combing through the information available to find the best IRA for you, a financial adviser can help you to create the best retirement plan for you. This might also be a good avenue to take if you have several accounts from different jobs you have held. A financial planner can easily discern what will be the best option for you.

No matter what avenue you choose, don’t let your old retirement accounts languish. Take that money with you when you change jobs!

Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

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{ read the comments below or add one }

  • It’s going to be finish of mine day, except before finish I am reading this great piece of writing to increase
    my know-how.

  • Jereme says:

    When it comes to retiring you want your paper trail to be clean and smooth. You want to take the easiest path and account consolidation often times makes the most sense.

  • RobertE says:

    The limited number of investment options in the 401K is another reason to roll money from old employers into an IRA. Rather than maybe a dozen choices in a 401K, an IRA at a brokerage firm offers thousands of different investments.

  • This is great advice. Having multiple accounts from various employers can become a paperwork and record keeping nightmare.

    In addition to consolidating your retirement accounts when you change jobs, it’s a good time to check beneficiary designations on your accounts. As an estate planning attorney, I often see outdated beneficiary designations, especially on accounts from long-ago employers.

  • Joe says:

    Great advice, Emily.

    Another important note is to make sure you do a direct (trustee-to-trustee) rollover. This helps to make sure you don’t lose the tax-deferred status of the account, and keeps you from having to worry about getting a check in the mail that then needs to be forwarded along to your new IRA custodian.

  • Michael Real says:

    I will definitely take that reminder written down. Although, I am not planning to quit my current job. lol But will take your advice when I do.

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