Managing Your Retirement Savings from a Previous Employer
Have you recently switched jobs and still have a retirement account sitting with your previous employer? If you have a vested balance in that account, you might be wondering what to do with it and how to make the most of it move forward.
Let us walk through a few options that could help you decide what is best for your financial future.
Leave It Where It Is
Sometimes, the simplest option is to just leave your retirement account where it is, especially if your former employer plan allows it. The money can still grow, and you will have the flexibility to roll it over or withdraw it at any time. Keep in mind, you will not be able to contribute to the account anymore, and you might face extra fees since you no longer work for that employer.
Roll It into Your New Employer’s Plan
If your current employer offers a retirement plan with favorable fees, investment choices, and features, rolling your previous employer's retirement account into the new plan may be beneficial. This approach allows you to consolidate your retirement savings, continue contributing, and select investments that match your objectives. Keep in mind that you will need to liquidate your previous investments and reinvest them according to the new plan offerings. Additionally, access to the funds may be restricted until you leave your current employer.
Move It to an IRA
If your new employer does not offer a retirement plan or their plan does not accept rollovers, transferring your balance to a traditional or Roth IRA is another option. Some IRAs provide planning tools and access to financial advice. You can continue making contributions and potentially grow your savings over time. It is important to note that early distributions may result in a 10% penalty, and if the funds were contributed pre-tax, the distribution will be taxed as ordinary income.
Cash It Out
Cashing out your retirement is seldom the best option, but provides a direct distribution of funds. If the account was funded with pre-tax dollars, the distribution will be subject to federal and state income taxes. Individuals under the age of 59½ will also incur a 10% early withdrawal penalty. Once the account is cashed out, the assets cannot be returned to the former employer's plan, and the funds will no longer benefit from tax-advantaged growth.
Each option has its own considerations, and some decisions may be irreversible. Taking the time to evaluate your choices in the context of your financial goals and current circumstances is essential.
This content is provided to help you explore your available options and should not be considered as a specific recommendation. For questions about managing a retirement account from a previous employer, contact Colleen Mooney or Terry Bleile at First Citizens Wealth Management by calling 641-422-1600 or emailing wealth@myfcb.bank.
You have worked hard to build your retirement savings; now it is time to make sure those savings continue working for you.