Thursday, February 14, 2013

The Next Move For Your Workplace Retirement Plan

These are times that find many people moving on from their jobs, sometimes by their own choice and sometimes not. If you’ve left your job or may be doing so soon, you might be wondering what to do with the retirement savings you’ve accumulated through the plan sponsored by your employer (such as a 401(k) or 403(b) plan).


You have four basic options:

  • Take a cash payout
  • Leave the money in the former employer’s plan
  • Move it to the plan offered by your new employer
  • Roll the dollars into an IRA

Cashing in

Some are tempted to take the cash payout.  Though enticing, this option should almost always be avoided.  The distribution will generally be treated as ordinary income and subject to mandatory 20% federal tax withholding, and, if you have not yet reached age 59-1/2, subject to a potential 10% penalty for early withdrawal of qualified retirement plan assets.  Unless you’re desperate for cash and all alternatives have been exhausted, cashing in on your retirement savings plan is costly and unwise.


Keeping money in an employer’s plan

If you feel comfortable with the investment choices offered and are familiar with how it works, you might consider leaving your money in your former employer’s plan.  Keep in mind that your money will be subject to the rules of the plan in terms of provisions related to investment options and withdrawal options. In effect, you will probably have less control over your money than if the funds were rolled into your own IRA.

Some people like the idea of rolling retirement plan dollars to the plan offered by their new employer. This option offers the convenience of having all of your workplace retirement plan dollars in one plan. However, there still may be limitations with the plan. Be sure you are confident that the new workplace plan gives you enough investment flexibility to make the most of your retirement savings.


Rolling it into an IRA

An alternative approach is to roll money from your former employer’s plan into your own IRA account. An IRA typically offers you the ability to put your money to work in a wide variety of investments, including individual stocks. You generally have a fair amount of flexibility to move money from one investment to another.

If you decide to roll your savings from a workplace plan to an IRA, make sure the transaction is a direct rollover from the retirement plan to the IRA custodian. A distribution paid to you raises a number of possible tax implications, such as mandatory 20% withholding on the distribution. Be sure to consider any benefits that may be lost during a rollover, such as the favorable tax treatment for appreciated employer stock held in a qualified plan.  If you are considering a rollover, you might also want consider a Roth IRA. A Roth IRA creates the potential for tax-free withdrawals from your IRA savings in the future, which could greatly enhance your long-term financial security. However, converting to a Roth IRA is generally taxable as ordinary income, so you have to weigh your options carefully to figure out what’s in your best interest. Talk to your financial and tax advisors to determine the best option for you.



Renée A. Hanson, CFP®, CEP®, CDFA™, CFS, is a private wealth advisor with Hanson, Ayala & Associates, a private wealth advisory practice of Ameriprise Financial Services, Inc. Her passion is in helping women achieve their dreams and financial goals, regardless of life’s many obstacles. Renée is licensed/registered to do business with U.S. residents only in the states of AZ, CA, CO, GA, IA, IL, MI, MN, MT, NH, NJ, NM, NY, OH, PA, SC, TX, VA, WA, WI. Please visit: to learn more.


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