Changing Jobs: What to Do With Employer Plans

When you're cleaning out your desk and packing up boxes for a career change, remember to pack up your retirement plan savings, too. You have several options for what to do with the money. Here's a look at 4 choices and their key considerations.

Option 1: Cash it out. Taking the cash can be tempting but also very costly. Although you'll receive the money to use now, you'll actually collect only a portion of your balance, because you'll owe taxes at your current income tax rate along with a 10 percent penalty if you're younger than age 55. While this hit may not seem like much if your balance is small, you also lose out on the benefits of future compounding interest. 

Option 2: Keep your money in your soon-to-be former employer's plan. If you're happy with the plan's investment options and fees and don't mind keeping track of multiple accounts, keeping your money where it is might be an option for you. (If your account is under a certain balance, your former employer may not allow you to keep the account.) However, you won't be able to make any additional contributions to the account.

Option 3: Roll the balance into an IRA. Consolidating your accounts with one financial institution can make it easier to monitor and manage your savings and schedule required minimum distributions in retirement. You'll also avoid any rules your employer may have about plan distributions. If you choose this option, a direct rollover—in which your retirement plan transfers your balance directly to your IRA custodian—is usually easiest and won't incur any taxes or withholding.

Option 4: Roll the balance into your new employer's retirement plan. If you'll soon be joining another company, you might consider rolling the funds into its plan. Not all plans allow rollovers, so check with the new plan's administrator. Be sure to consider the fees and investment options available, too.

Consolidating Accounts: IRA Transfers and Rollovers

If you have numerous accounts at various financial institutions, it can make managing your savings more difficult. By consolidating your accounts (specifically IRAs) into one account, you may reduce investment fees and help maximize your returns.

Transfers and rollovers are the 2 best methods for consolidating your IRAs. Evaluate your personal circumstances to decide which route is best for your needs.


An IRA transfer refers to the movement of funds between the same types of accounts with no distribution to you. For example, you could move money from one traditional IRA to another traditional IRA.

Generally, a direct transfer is the easiest way to move assets from one IRA to another. The transaction is neither taxable nor reportable to the IRS and is completed by the distributing and receiving financial organizations.


An IRA rollover is the movement of funds between any type of retirement account into an IRA and can be done either directly or indirectly.

With a direct rollover, you roll over your retirement savings from an employer-sponsored retirement plan directly to an IRA. You'll avoid mandatory 20 percent income tax withholding and any IRS early distribution penalty tax, although investment surrender fees may still apply.

An indirect rollover is a tax-free distribution of all or part of your retirement plan assets. Since you take possession of the IRA assets, the movement is reportable to the IRS and your employer will withhold 20 percent for taxes. That will be returned to you at tax filing time as long as you complete a rollover of the full distribution amount (including the 20 percent withheld) within 60 days.

Life Changes: Marriage and Divorce

When you get married, you may be combining households, finances and families, so it's essential to discuss financial goals with your partner and see how they align. Focus on financial expectations at different stages in your life (especially retirement) and remember to update your beneficiaries.

IRAs are an effective way for couples to save for retirement. Each spouse must have his or her own IRA to receive contributions; you can't have a “joint” IRA. Even if only one spouse is earning income, contributions can be made into each IRA as long as the following requirements are met:

  • You’re married and file a joint federal tax return.
  • You or your spouse have/has compensation or earned income to cover the contribution amount.

  • The non-compensated spouse has an IRA and is under age 70½ (in the case of a traditional IRA).
  • The Impacts of Divorce

    If you’re getting a divorce, be sure to update the beneficiaries on your financial accounts, especially your employer-sponsored retirement plans and IRAs. Remember that beneficiary designations generally override will instructions, so even if you update your will, if you forget to update your beneficiary designations, your wishes may not be followed.

    Also note that a spouse may be legally entitled to a portion of retirement plan assets, so it’s important to consult an attorney about the division of all your financial assets in the event of divorce.

    Children: Adjusting Budgets

    Kids are rewarding, but they don’t come cheap. The U.S. Department of Agriculture estimates it costs about $245,000 to raise a child to age 18.

    Continue your commitment to saving for retirement even as your family expands. Adjust your budget to fit your family. You may have to cut back on retirement saving, but don't stop altogether and think twice before planning to use retirement funds to pay for education expenses. Your children can get loans and other help to pay for college—there are no loans to pay for retirement.

    Also remember to update your beneficiary designations and estate planning documents as your family situation changes.

    The Cost of Caregiving

    At some point in your life, you may be caring for an aging or ill parent or other relative. According to AARP, millennials make up about one-quarter of family caregivers in the U.S. They’re most likely to be juggling jobs and caregiving, as well as their own personal lives.

    Caregiving can take a toll on one’s physical, mental and financial well-being. Try not to let it interfere with your retirement savings plan. Taking time off from working for caregiving not only interrupts your retirement plan contributions; it can also affect future Social Security benefits. If you’re faced with becoming a caregiver, be sure to explore community resources and help from siblings to balance your financial future with your current responsibilities.

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