When changing jobs, thereare several obligations totake care of, including thevital decision of what todo with your employer-sponsored retirementplan. There are several things youcan do; be sure to look at the benefits andconsequences of each option. Let's take alook at the four basic choices you havewhen making a career change:
• Roll assets into an IRA. This is usuallythe best option. Rolling your assets letsyou retain the funds' tax-deferred growthpotential and gives you access to themoney if needed (eg, if you're laid off). AnIRA provides you with the flexibility todetermine how much income you needand when you need it once you retire. Inaddition, you can maintain all IRA assetsin one place, which will make your assetallocation task that much easier.
• Cash out. Many people want to takethe money out of their employer-sponsoredretirement plan when changingjobs, but they may be paying unnecessaryincome taxes by doing so. Even if youneed to use your savings for income at thetime, consider the consequences.
You will be eliminating a key incomesource at retirement, which can jeopardizeyour financial security. When you take the funds out of youraccount, you will owe income taxes onthe amount you receive. Cashing outshould be considered a last resort.
• Leave your assets in your formeremployer's plan. If you've already heldseveral jobs, leaving your assets in a formeremployer's plan may seem like theeasiest option. It requires no action onyour part, but there may be some consequencesdown the road. Your employerwill control when and how you accessyour savings in the future. In addition,you will need to keep track of each plan,its different rules, and the location associatedwith each one. This may becomecumbersome if you have several plans.
• Move assets into a new employer'splan. You may be able to move yourretirement plan assets into your newemployer's plan, depending on its rules.The government has removed many of thebarriers that previously made it difficult totransfer funds from one employer to thenext. Now you can transfer funds fromplan to plan even if the plans are not thesame, but first check whether youremployers' plans permit the transfer. Thiswill help keep your funds in one centrallocation, but you will be limited to yournew employer's plan. Make sure the ruleswill work well for your situation.
is vice president, investments, and a financial
consultant with AG Edwards in Hillsborough, NJ. He welcomes
questions or comments at 800-288-0901 or www.agedwards.com/fc/joseph.lagowski. This article was provided by AG
Edwards & Sons, Inc, member SIPC.
Joseph F. Lagowski