If there’s one thing I’ve learned about money, accounts, and adulting, it’s that leaving things alone and ignoring them is a recipe for trouble. Like dishes slowly piling in a sink, ignoring what happens to your pension or 401k account when you transfer jobs is a recipe for losing your investment and having your funds managed (read: mismanaged) by someone you didn’t chose.
Throughout my early twenties, I have been job-hopping like the rest of
our generation. Because I know the importance of putting away retirement money now, I’ve tried to get my stuff together during this turbulent career phase. Money you put away in now is worth much more than ten years from now. Starting out with the sort of internship, part-time work that a lot of underemployed, young adults have post-college didn’t put me in a great position to start preparing for retirement. I was more worried about paying the bills and trying to find full time employment than the intricacies of the stock market or an IRA or 401k. It took until I landed a full-time position in a state legislature with great benefits — but without a mandatory or automatic retirement policy — to take charge of my savings.
I went ahead and started investing small amount of my paycheck into the voluntary retirement plan at legislature. I was set. My life in old age was set. All my accounts were settled, and the tiny portion this took out of my monthly budget was worth the feeling of future security. I would be a fabulous granny with big sunglasses and all that jazz. Just you wait, 65!!
Then, as it happened, I got a sudden job offer to move across the country and work for a large corporation. I accepted, even though it would complicate many of my stable plans. Between finalizing my time at my current job, getting the office ready for my departure, getting the last of our bills through their committees, I forgot about my tiny retirement account.
With all the logistics of moving coast to coast, getting rid of my belongings, downsizing my closet, and figuring out how to get silverware from point A to point B, I was pretty scattered. When a small white envelope appeared in the mail, I packed it up and took it with me (great mail-forwarding policy — I know). Opening it upon my arrival, I found I had almost missed the period in which I could roll over all of the money from a year’s worth of paychecks that had been deposited into my state account. I got on the phone with my old HR department
ASAP and they helped me get everything squared away and into a new, separate Roth IRA. Phew.
Now, I’m putting money away in a 401k fund that is sponsored by my job in addition to this personal Roth IRA that I funded using a pension plan from my state job. I know that if I leave my job this very moment, I can leave my funds where they are (a fund which luckily has a very low-maintenance fee) or I can roll them over into my personal Roth IRA (which I also chose because of its low-fee
rate). Even though it’s another thing on your plate as you move to a
new city, start a new job, or change directions in your career — be sure not to leave any of your hard-earned money on the table.
Here is a basic rundown of what you can do with your fund.
1. Cash it out.
Cashing out your fund is sometimes the default for retirement funds when an employee leaves. Mine was headed for this option when I called HR. This might sound enticing — cash sounds enticing!! Get that $money$ — but it is likely to trigger taxes and penalties on your investment. This money has been put away for retirement purposes, and most plans keep that in mind and make it very difficult to get to your funds before you are 55 or 65 years old. The penalties for cashing out include (but aren’t limited to), tax penalties and fees that eat at the principal amount of money you put away. If, after going through your options, cashing it out is the most ideal for your situation (as in, you’re in desperate need of cash), go for it. But make sure to give a phone call to your old HR person, or the company that manages your funds, to go through full variety of options so you don’t eat away at the principal (and perhaps interest) you’ve grown while putting your money in there! In the meantime, here a few alternative options you might (read: definitely probably should) consider.
2. Keep the money there.
You might be able to just leave the money in that account. If the fees charged by the management company are really low, it’s more comfortable, and your plan allows, you could leave your investment in place. Make sure to talk to your rep about this, though, as the default for your fund is often to cash it out (and Number One explains why that’s not ideal). You may be able to ask them to keep it in the fund, but don’t assume it will just safely stay there. If you choose this option, make sure to check that you’re leaving your investment in a good place. If I left my current job, I would choose to leave my current retirement money alone, since it’s in an account that has really low-management fees. But if you’re looking at exorbitant fees that are going to eat away whatever interest you are growing for your future, you could be throwing your own money away. Read the fine print and see what percentage is taken every month for keeping your money invested in your old account.
3. Move the money into your new company’s 401k.
You may be able to consolidate 401ks and move the money, without penalty, into your new account. This does take some scrambling to make sure that your old plan doesn’t cash out your plan in order to transfer it (triggering taxes and penalties in the process). In addition, your new plan needs to allow transfers. Your HR rep or similar staff at your company (or the 401k management company) should have an easy answer as to how to make this happen. Again, make sure that you’re consolidating into the account with the least amount of fees (that could be the newer one, or the old one)! Putting all your money into one pool is only better if you’re earning interest more on it and not losing your earnings to those who take a cut for “managing” the account.
4. Roll it along into an IRA.
If you are not continuing employment (aka, you’re leaving your current job but aren’t moving into a new company), or your new plan doesn’t allow transfers, or you just don’t want your money to stay in the old fund, you can move your old company 401k into an IRA or Roth IRA. Talk to your banker about opening this account and again making sure that the 401k fund isn’t cashed in order to preserve your capital intact (again, penalties and fees!), and see how much of your fund is eligible for transfer. Your previous employer may be required to keep some of your capital for tax purposes, if you choose this option. Plus, if you aren’t able to talk to your former HR representative about these options: every bank should have someone whom can talk to you about the differences between a 401k and an IRA account.
Whichever of these options you choose: act sooner rather than later. A job transfer is a ticking time bomb for your investment that you cannot ignore without damaging your future! I could have lost an entire year of progress if I had just ignored a letter for a few more days. Talking to your financial adviser or your bank or your HR rep will make the difference between keeping and losing your savings. Think of this administrative drudge work as an investment in ~*~future lattes~*~ for when you’re a fabulous granny or grandpa. Whatever image gets you on the phone and into their office!
Bream is a young professional and mucisian in D.C. She bikes, works downtown next to the White House, and is still surprised when she sees D.C. on TV. She runs a women’s workwear blog to help ease the morning closet snafu. You can find her Etsy shop on Instagram.
Image via Unsplash