Could Your Job Change Derail Your Retirement Savings?
Starting a new job is always a very exciting time. Your new job may bring a sizable raise or a new title. It could mark the beginning of a new path in your career. If you have recently gotten a new job, you are likely busy with transitioning into your new position and adjusting to your new employer.
During this busy time, however, it may be wise to take time to analyze your retirement planning. Your job change could impact your saving efforts. However, with some careful planning you can keep your retirement goals on track. Here are a few issues to watch out for during your job change:
401(k) Contribution Delays
Your new employer likely offers a 401(k) plan as part of its benefits package. However, that doesn’t mean you’ll be able to contribute to the plan immediately. Many employers have a waiting period before new employees can make 401(k) contributions or receive matching employer contributions. The delay could be as short as a few weeks or as long as a year.
Talk to your new employer and find if there is a waiting period. A short delay may not have much impact on your savings, but a long delay could be problematic. You may be able to negotiate a shorter waiting period. (Also, you may want to consider other retirement savings options that allow more flexibility and are not tied to your job.)
Your Old 401(k) Plan
You may be leaving a vested balance behind in your former employer’s 401(k) plan. While it’s not necessarily an urgent matter, at some point you’ll likely need to make a decision about what to do with that balance.
Some people are tempted to cash out their plan and take a lump-sum distribution. That’s certainly an option, but it comes with some serious consequences. One is that the distribution is taxable, which could reduce your balance and possibly even push you into a higher tax bracket. Also, if you’re under age 59 ½, you may face a 10 percent early distribution penalty.
Another option is to roll the balance into an IRA. By rolling your balance into an IRA, you avoid distribution taxes and penalties. Also, your IRA may offer a wider range of investment options, allowing you to implement a strategy that is more aligned with your goals.
Annual Contribution Limits
When you become eligible for the plan at your new employer, you may want to connect with the plan administrator to discuss your year-to-date contributions in the former employer’s plan. In 2017, you can contribute a maximum of $18,000 to a qualified plan if you are under age 50 and $24,000 if you are 50 or older.1 If you exceed those limits, you could face tax problems. (This is another reason to consider less traditional retirement savings vehicles that are not subject to these limits.)
Because of your job change, your new plan administrator won’t know how much you’ve contributed to your former plan. That means the administrator could inadvertently allow you to contribute more than the maximum. However, if you provide your year-to-date contributions to the plan administrator, they can then monitor your contribution levels and notify you before you exceed the limit.
Investigate Other Options
401k plans and IRAs are not the only ways to save for retirement. They are very popular due to constant promotion by employers and the government, but they do have some drawbacks, and are not a good fit for everyone. Before simply accepting the “default” offering at your new job, take the time to learn more about other retirement savings options such as annuities, cash value whole life insurance, and other vehicles that offer safety and growth at the same time. Although some of these strategies have become less commonly used in recent decades, they are tried-and-true financial vehicles that can offer security and protection for your hard-earned retirement savings.
A job change can be an exciting time indeed, but it is also a good time to reassess your retirement planning and investigate alternative strategies that may be better suited for accomplishing your goals. Before contributing to a new 401k or other qualified plan, take some time to research all of your options so that you can decide what strategies are really best for you.
Want to keep your retirement planning on track during your job change? Contact us today to schedule a free planning session. We can help you analyze your needs and develop a strategy that is right for you.
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