Are you getting ready to start a new job? Or are you gearing up for a job search? A job change can be an exciting and hectic time. Your new job may offer higher compensation, better hours or a substantial promotion.
While a job change may offer many positive benefits, it can also cause a disruption to your retirement savings efforts. You probably have a lot of tasks on your plate during this time, such as tying up loose ends at your old job and getting the hang of things in your new role. Retirement planning may be far down on the priority list.
During this transition period, take some time to review your retirement savings efforts along with savings opportunities at your new employer. With a little planning, you can avoid a disruption to your savings and keep your retirement planning on track. Below are a few tips to guide you through your job change:
Find out when you’ll become eligible for the new 401(k) plan.
Most employers have a waiting period before new employees can contribute to the 401(k) plan and an even longer waiting period before they’re eligible for matching employer contributions. Make sure you know those dates. Some waiting periods are as short as 30 days, while others can be as long as a year or more.
While waiting 30 days to contribute may not be an issue, waiting six months or a year could have a big impact on your planning. You have a couple of options to deal with a long waiting period. One is to negotiate a shorter period. Depending on the job, your new employer may make an exception for you. Another option is to contribute to an IRA instead while waiting to become eligible for the 401(k).
Make a decision about your old 401(k) balance.
You may be leaving behind a vested balance in your former employer’s 401(k). At some point, you’ll likely need to make a decision about what to do with that plan. You may be able to leave it in the plan for the long term. However, it could be difficult to manage an investment strategy across multiple accounts.
Another option is to roll your balance into an IRA. You avoid any taxes and penalties, and you keep the funds in an account that you control. Also, your IRA will likely offer a wide range of investment options, so you can build a strategy that meets your needs and goals.
Resist the urge to cash out your old 401(k). Although you can take the balance in a lump-sum payment, it could have profound consequences. First, 401(k) distributions are taxable, so you will have to pay income taxes on the full distribution amount. Second, if you are under age 59½, you will likely have to pay a 10 percent early withdrawal penalty.
Notify the new plan administrator of previous contributions.
The maximum 401(k) contribution for 2017 is $18,000 for those under age 50 and $24,000 for those 50 and older.1 If you exceed the maximum amount, you could face unexpected taxes.
Usually, your plan administrator will notify you before you hit the maximum level. If you change jobs, however, the administrator of your new plan won’t know about contributions you’ve already made during the year to your former employer’s plan. Notify your new administrator of previous year-to-date contributions so they can monitor that amount and keep you from exceeding the maximum.
Ready to plan your retirement savings strategy? Let’s talk about it. Contact us at Wealth Strategies Group. We can help you analyze your needs and develop a plan. Let’s connect soon.
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