If a job change is in your future, you probably have a lot to think about. Maybe you’re just starting to send out resumes and going on a few interviews, or maybe you’re in the middle of the transition to your new position. Whatever the case, your retirement savings may be the last thing on your mind.
It’s important not to overlook the impact a job switch can have on your retirement planning. If you’re not careful, you might run into complications that can throw your savings off track. Below are a few things you’ll want to pay attention to:
When will you be eligible for your new plan?
Most employers require that you spend some time at their company before you can contribute to their 401(k) plan. These waiting periods can be as short as 30 days or as long as one year. Even if you are allowed to contribute to the plan relatively soon, there’s likely to be a delay before your new employer makes matching contributions.
A short waiting period may not have much impact on your savings, but a period of six months or a year could have a significant impact. You might be able to negotiate a shorter waiting period. If that’s not an option, you may want to consider other savings vehicles, such as an IRA, while you wait.
Do you have a plan for your old 401(k)?
Just because you switch jobs doesn’t mean your old 401(k) plan goes away. At some point you’ll need to consider what to do with the old 401(k) plan. You could leave it alone. There’s nothing that says you have to do anything with your old plan. If you have multiple 401(k) plans, however, it could become difficult to manage them all.
It’s also possible to cash out the plan and take the funds as one lump sum. While this might sound like a good idea, it does come with a downside. You will likely face taxes on the distribution, and you could also be hit with early distribution penalties if you’re not yet 59½ years old.
Another option is to roll it into an IRA. This will let you avoid taxes and penalties. Another advantage to an IRA is that you might gain a larger range of investment options. Whatever you decide to do, it might be a good idea to talk with a financial professional, who can help you decide which route is best for you.
Could you hit the maximum contribution?
Most people are limited to how much they can contribute to their retirement plans within the course of a year. For example, in 2017 the max contribution for individuals is $18,000 for people younger than age 50 and $24,000 for those age 50 and over.1 Your new plan administrator probably won’t know how much you’ve already contributed to your old plan. That means you could run the risk of contributing more than the limit, which could create a potential tax issue.
You can avoid this risk by communicating with your new plan administrator and telling them how much in year-to-date contributions you’ve made to your old plan. The administrator can then notify you if you approach the maximum limit.
Need help keeping your retirement savings plan on track during your job change? Contact us at Trinity Financial. We can help you evaluate your objectives and needs, and then develop a strategy. Let’s connect soon and start the conversation.
Advisory Services offered through Change Path, LLC an Investment Advisor.
Trinity Financial Group and Change Path, LLC are not affiliated.
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