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Retirement Plan Options


Many, if not most, people find themselves leaving their current employer. These changes occur for various reasons. The reasons vary from retirement to an employer terminating an employee (again for numerous reasons).

Most business and government employers offer some form of retirement plan as a part of the benefits package.

When leaving a job with a retirement plan you are generally faced with four (4) options.

First, leave the retirement with your former employer.  This option allows your investments to continue to grow tax-deferred.  However, any employer matching you received will cease. Plus, if you move to another city or state you may lose track of these accounts as addresses and other contact information is not kept current. The most common question I have seen referenced to retirement plans on advisor sites is whom do I contact or how do I contact someone about the status of my old retirement account at a former employer?

Second, and the most problematic, is cashing out. Cashing out of a retirement plan will trigger significant tax issues. This is particularly true for those under 59 and a half. By cashing prematurely, not only do owe you taxes, you face significant IRS penalties for early withdrawal. These could result in the value of your account being reduced by half.

The third option is to roll your account over into your new employers retirement plan. Many employer plans allow this option. Rolling into the new employers plan is a tax-free event. However, you may or may be faced with investment choices that are not optimal for your situation.

The final option is to roll your retirement plan into a personal IRA (traditional or Roth). Advantages to this are several.It also is a tax-free event, it ensures your information is current, and it also allows you to build a portfolio that meets your goals and risk tolerance.  Upon retirement from an employer this is also viable option as it allows you to manage your portfolio in manner more conductive to supporting you in retirement.

The content contained herein represents the author's opinion and should not be regarded as investment advice, which is provided only to Agnew Capital Management LLC clients upon completion of a written plan.

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Comment   |  2 years, 8 months ago from Sierra Vista, AZ