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Bottom Line Up Front

  • If you have a retirement plan at work, when you change jobs, you’ll need to decide what to do with the money in that account.
  • It can be tempting to just take that money out in cash, but doing so will cost you both in taxes and lost future earnings.
  • A better option may be to roll over the old account into a new employer plan or an individual retirement account (IRA).

Time to Read

3 minutes

When you're cleaning out your desk and packing up boxes as you change jobs, remember to pack up your retirement plan savings, too. You have several options for what to do with the money, each with its own tax consequences and personal finance pros and cons. Here’s a look at 4 investment decisions and how they affect you:

Option 1: Cash it out. Taking the cash from the old plan in what is known as a “lump sum distribution” can be tempting but also very costly. You’ll get the money to use now, but you'll really collect only a portion of your account balance, because you’ll owe taxes to the IRS at your current income tax rate along with a 10 percent early withdrawal penalty if you’re younger than age 55. While this hit may not seem like much if your balance with the old employer is small, you also lose out on the benefits of compound interest. Interest earned on your savings won’t be reinvested and, in turn, generate more earnings. Taking the money now could mean tens or hundreds of thousands of dollars in lost retirement savings over a few decades. 

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 tracking multiple retirement savings plans, keeping your money where it is after your job change is an option. (If your account balance is small, your former employer may not allow you to keep the account.) However, you won’t be able to put any more money in the account. 

Option 3: Roll the balance into an individual retirement account (IRA). Combining your accounts with one financial institution can make it easier to manage your savings and schedule required minimum distributions later on. You’ll also avoid any rules your employer may have about plan distributions. With a Navy Federal IRA, you get the security of a certificate, savings or money market account and the tax benefits of an IRA. If you choose this option, a direct rollover—in which your retirement plan transfers your balance straight to your rollover IRA—is usually easiest and won’t cause any taxes or withholding. You may be eligible for either a traditional IRA or a Roth IRA, which have different rules for tax-deferred or tax-free growth.

Option 4: Roll the balance into your new employer’s plan. If your new job offers a retirement plan, you might roll over your funds there. Not all plans allow rollovers, so check with the plan administrator at the new company. Be sure to consider the fees and investment options available, too. Keep in mind that you’ll likely have to wait until you leave your new employer before you can move the money again.

You Have Time to Decide

Leaving a job can be a good time to step back and take a look at your financial planning. But don’t worry! Even if you left your previous employer a long time ago, remember there’s no time limit for when you can roll over that account.

Next Steps Next Steps

  1. A job change is a good chance to review your finances overall. Talk to a Navy Federal Financial Advisor today for personal investment and retirement help.
  2. See how your decision will affect future savings by using our Retirement Interest Calculator


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.