Keep Your Retirement Plan on Track During A Job Change

February 10, 2017

Is a job change in your future? Are you about to start a new job? Or are you starting the job search process? If so, this is probably a hectic time for you. Amid the chaos it’s easy to overlook the impact a job switch can have on your retirement savings.

A job change can have serious ramifications on your retirement savings efforts and, if you’re not careful, can throw your planning off course. Below are a few retirement planning items to consider as you navigate your job change:

Is there a delay before you can contribute to your new employer’s 401(k) plan?

Most employers don’t allow you to start contributing to their retirement plan right away. It’s fairly common to have to wait at least 30 days if not a full year before you can start contributing to your new employer’s plan. There could also be a delay before your new employer makes matching contributions.

If this is the case, you may want to consider some alternative savings vehicles. For example, consider contributing to an IRA while you’re waiting to become eligible for the new 401(k) plan. You could also try to negotiate a shorter waiting period. The new employer may not grant this request, but it doesn’t hurt to ask. Either way, it’s important to try to avoid a lengthy gap in your savings efforts.

What will happen with your old plan?

Just because you switch jobs doesn’t mean your old 401(k) goes away. If you have a vested balance in the plan, it will remain there until you take action. You may be allowed to keep the balance in the old plan as long as you like. However, it may be difficult to implement a cohesive investment strategy across multiple accounts.

It’s possible to cash out and take the funds as a lump sum. However, this option can come with some significant downsides. Remember, 401(k) distributions are taxable. If your balance is sizable, you could face a large tax bill. Also, if you’re under age 59 ½, you could also face a 10 percent early distribution penalty.

Another option is  to roll your old 401(k) balance into an IRA. This option lets you avoid taxes and penalties. It also may give you a wider range of investment options so you can implement a strategy that aligns with your needs and goals.

Have you communicated with your new plan administrator?

Did you know there’s a maximum on how much you can contribute to your 401(k) plan each year? In 2017 the maximum limit is $18,000 for people under 50 and $24,000 for those age 50 and older.1 If you exceed these limits, you could face tax issues.

That’s why it’s important to talk with your plan administrator when you start your new job. Your new plan administrator won’t automatically know how much you’ve already contributed to your old plan so far this year. If you could potentially hit the maximum, you may want to share your prior contribution amounts with your new plan administrator, who can then notify you before you reach the limit.

Ready to learn more about retirement planning? Contact us at Grand Canyon Planning Associates. We can help you evaluate your objectives and needs, and then develop a strategy. Let’s connect soon and start the conversation.