What should I do with my retirement plan money when I change jobs or retire?

Things to consider when planning for retirement.
Aug 1, 2015
Brady McArdle
What should I do with my retirement plan money when I change jobs or retire?

According to a recent Job Openings and Labor Turnover Survey, there were 5.4 million available jobs in the U.S. in June of 2015. This is the highest number since the survey series began in December of 2000. In addition, the Labor Force participation rate (which measures the participating labor force) was at 62.9 percent in May. This is the lowest reading since the late 1970s. These numbers suggest that many people are retiring and leaving the labor force, while others are changing jobs. If you are one of these individuals, you will have some important decisions to make regarding your current retirement plan.

There are three common options from which to choose:

  1. Leave the money in the existing retirement plan
  2. Roll the money into a Rollover or Traditional IRA
  3. Take a distribution from the plan

Taking a distribution from the plan is typically the least desirable option. If all of the money in your plan is from pre-tax contributions, then the distribution amount will be taxable income on your tax return. And, if you are younger than 59.5 years of age, you could incur an additional 10 percent penalty on the distribution amount.

Since the distribution option is not ideal, most people are left with the other two choices. Deciding whether to leave the money in the plan or transfer it to a rollover IRA depends on many factors. Each situation is unique and should be carefully analyzed. Generally, many people do not want to leave their money with their former employer because they want to detach altogether. In addition, many plans have limited investment options compared to a rollover IRA at a large custodian such as Charles Schwab or TD Ameritrade. Each has thousands of no-load and no-transaction fee funds to choose from.

However, there are times when leaving money in a plan for a period of time might be advantageous. It is important to discuss these options with your CERTIFIED FINANCIAL PLANNER Professional. To find a local fee-only CFP®, visit napfa.org and use the “Locate an Advisor” tool. 

About the Author

Brady McArdle, CFP®, Owner/Planner
Galecki Financial Management Inc.
(260) 436-8525

IMG Insurance Management Group

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