How to Keep Saving for Retirement During a Career Transition
Are you tired of your current job and thinking about a switch? Maybe you’re already in the process of sending out resumes and interviewing. Or you might have already accepted a new position and are busy transitioning to your new role. Whatever the case, switching companies is a hectic time. There are lots of things to consider. And in that chaotic time, your retirement savings might not be the first thing you’re worried about.
But if you’re not careful, a job switch could throw your savings plan off track. With so much to keep track of, it’s important not to let a job switch hinder your retirement goals. Below are a couple of ways you can avoid letting a new career get in the way of your savings:
Figure out when you’ll be eligible for your new plan.
It’s not uncommon for employers to have a waiting period before new hires can contribute to their retirement plan. And this time frame can be as short as 30 days or as long as a year. Furthermore, employers typically wait some time before they start to match your contributions.
These waiting periods can impact your ability to maximize your retirement contributions. If your new job has long waiting periods, you might consider contributing to an IRA. You might also try to negotiate a shorter waiting period. Either way, you don’t want long waiting periods to get in the way of hitting your savings goals.
Have a plan for your old 401(k).
A new job usually means a new 401(k) plan. But that doesn’t mean your old one goes away. You have a couple of options as to what you can do with your old 401(k). One is simply to leave it alone. There’s nothing that says you have to do anything with it. You can just leave your funds in it and let them grow. If you have multiple retirement accounts, however, it could become difficult to manage them all.
Another option is to cash out and take a lump-sum payment. By doing this, though, you may create a taxable event. If you’re under the age of 59½, you could be hit with early distribution penalties. However, you can avoid these penalties by opting for a third choice—rolling your old 401(k) into an IRA. Doing this might also give you more control over your investment options.
Talk to your new plan administrator.
In a given year, most people are allowed to contribute only so much to their retirement plans. In 2017 the max contribution for people under age 50 is $18,000 and $24,000 for people 50 and older.1 Talking to your new plan administrator is crucial, because it might help you avoid contributing too much. This is important because excessive contributions can create a tax issue. If you communicate with your new plan administrator and share your prior year-to-date contributions, they’ll be able to warn you before you reach your limit.
Ready to learn more about retirement planning? Contact us at Ambrose Financial & Insurance Services. We can help you evaluate your objectives and needs, and then develop a strategy. Let’s connect soon and start the conversation.
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