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Retirement Planning: The Job Change and Your Retirement Plan February 4, 2009

Posted by retirementwithaplan in retirement, social security and pensions, Uncategorized.
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A young lady came up to me and related a story of new found money. The cash was invested in a 401(k) at her former workplace and she either was not aware she had enrolled or the company did their fiduciary responsibility and socked away a few bucks on her behalf. This person it should be disclosed as recently entered into a credit management situation, feeling the urgency to clean-up bad bills so she could take on the loan associated with a house. She told me they had rolled it over into an IRA and she was wondering what she should do. She was not asking for retirement investing or planning advice.020309_rllvr_401

She was looking to spend it. But what should she, or someone like you do when they leave a job that had a plan for a new one that either doesn’t have one or will not rollover the previous invested dollars from another account?

The first thought is: It is my money, i want it. Your old company will be more than happy to cut you a check and once in hand, the temptation can be almost overwhelming. But there are problems with this approach and you should know what they are. (Find out more about exceptions and rules to 401(k) withdrawals here.)

Transferring them out of yourold employers 401(k) is probably the best idea. If your new employer accepts the transfer, even better. BUt while you decide on a strategy that would best suit your tax purposes, leave it where it is. In accounts of less than $5,000, the employer may simply roll it into an IRA in the same fund family that administers your old company’s sponsored plan. Often, the rollover will be done to a very conservative fund, even a money makret type account until you decide where and how you want the money invested.

Two things to consider if this happens: what are the costs of the fund family’s mutual funds (sometimes the costs are less for similar funds in the old company’s plan) and are they the best choice for long-term growth.

The rollover can be seamless – company administrator to new plan administrator or by cutting you the check and allowing you to do the leg work. Opening your own IRA can often be the next best option.

But by all means, keep the money working for you. Even if the balance in that account is depressed and the forced sale means you will not see those shares (the shares that were purchased in your old plan will need to be sold – at a loss in many cases) recover in your former plan, the tax liabilities and the potential for lost profits are huge should you wait. Just remember, the consequences are much larger should you spend it.

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