Sit. Stay. Rollover.
With just some basic preparation you and your financial
planner could have your retirement fund trained to
overcome obstacles with the grace of a champion pedigree.
Is it possible to train your retirement plan? We think so.
Maybe you’re about to change jobs, change companies, or change your career completely. Whatever
change is a foot, 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) companies plan. You want to share this
document with a financial professional so the two of you can decide what option fits you best. Many
companies have restrictions on what can and can’t be done with your retirement fund. 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. You can withdraw your investment savings and keep the money
as a lump sum (sit), you can leave the money where it is (stay), or 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’ll want to consult a financial consultant and choose the option that
makes you feel most comfortable.
If you choose to withdraw your money in a lump sum from a previous
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 another 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 one 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
If you choose the 401k rollover, you may have the option of rolling your assets into
either an IRA or your new employers plan. However, to avoid paying taxes
and penalties, you should have these assets transferred directly to another
IRA custodian. This rollover will still have to be reported to the I.R.S. One
downside is that your retirement rollover cannot be rolled into a Roth IRA.
However, you may qualify for a Rollover IRA which can than be rolled into a
Roth IRA, but you must meet certain qualifications. Once a Rollover has been
put into a Roth, you cannot roll the Roth into another employee-sponsored
There are, however, exceptions to the rules of roll-overs for first time homebuyers. If you’re emptying out
your former retirement fund and wish to use up to $10,000 towards the purchase of a first home, you’re
allowed to do so. You are taxed on the withdrawal, but you do not have to pay the extra 10% early
withdrawal fee. You also have up to 120 days to use the $10,000 on a first-time home purchase rather
than the basic 60 days.
These are just the basic options you may have when changing careers and retirement plans. Deciding
what to do with your retirement savings when changing companies or careers is one of the most crucial
decisions you’ll make. And by being prepared in advance, you’ll know when it comes time to confront
change, you’ll be ready.
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