Money Matters

Money Matters: I’m Changing Jobs. What Should I Do With the Money in My Plan?

Editor’s Note: Briant Sikorski from Stratos Wealth Partners in Cary contributed this article.

Cary, NC – Changing jobs is an important decision – one that many of us are making more often. Once you’ve decided to switch jobs, your next move is to determine what to do with the money in your former employer’s retirement plan.

Four Common Options

Generally, you have four options for handling the money in your account:

Option #1. Keep the Money in Your Former Employer’s Plan

If your former employer permits, leaving your money where it is may be an attractive option because it allows you to continue enjoying the benefits of tax-deferred compounding. If you are happy with the plan’s investment options, this could be a good choice.

On the downside, there may be special conditions or fees associated with your continued participation, and you may have withdrawal restrictions in the future.

Option #2. Roll the Money Into Your New Employer’s Plan

This option also has its advantages – continued tax-deferred growth of your investment and the convenience of having all of your retirement assets in one place.

But because every employer has its own rules governing rollover money, before you choose this option, review your new employer’s plan and possible eligibility restrictions carefully.

Option #3. Take the Money in Cash

While this option may seem appealing because it gives you immediate access to your money, Uncle Sam is the real winner here. Cash distributions are subject to a mandatory 20 percent federal withholding in addition to regular income tax.

Furthermore, if you are under age 59 ½, your distribution would also be subject to a 10 percent additional federal tax. Finally, if state or local taxes apply, they could claim an even bigger portion of your account.

Option #4. Roll the Money Directly Into an IRA

This final option allows you to roll all or a portion of your money into an IRA. To avoid withholding taxes and potential penalties, arrange for a direct rollover of the entire amount into an IRA. An IRA offers the same benefits of tax-deferred investing for retirement and typically provides a wider range of investment options to choose from. However, additional fees or commissions may apply.

The money you accumulate through an employer’s plan may become a primary source of income after you retire, so how you manage it today could have a big effect on your financial situation in the future.

Money Matters


Briant Sikorski is a Wealth Advisor at Stratos Wealth Partners. Photos by perzon seo and reynermedia.