Retirement Rollover: What to Know When Starting a New Job
Starting a new job is exciting with new opportunities, new coworkers, and often, new benefits. But one piece that often gets overlooked in the transition is your old retirement account. Whether you have a 401(k), 403(b), 457(b), or pension, it’s important to understand your options before deciding what to do next. Today, Certified Financial Planner™, and FFCCU guest blogger Nichole Coyle joins us to talk retirement rollover.
As a financial planner, I regularly help people navigate this exact situation. The right choice can make a big difference in your long-term financial picture.
1. Know What You Have
Before making any decisions, start by identifying what type of plan you have.
- 401(k): Typically offered by private employers.
- 403(b): Common for public schools, hospitals, and nonprofit organizations.
- 457(b): Often available to state and local government employees, including police and firefighters.
- Pension: A defined benefit plan that provides a set income in retirement, usually based on years of service and salary.
Each plan type comes with its own set of rules for rollovers, withdrawals, and taxation, so it’s important to confirm the details before taking action.
2. Your Options When Changing Jobs
When you leave an employer, you generally have four main choices for your retirement account:
Option 1: Leave it where it is
You may be able to keep your funds in your former employer’s plan. This can make sense if the investment options and fees are favorable. But you’ll no longer be able to contribute, and you’ll have one more account to keep track of. You’ll also need to remember to contact your previous plan with any future changes to your beneficiaries, contact information, etc.
Option 2: Roll it into your new employer’s plan
If your new job offers a retirement plan, you might be able to roll your old account into it. This can simplify things by keeping your savings in one place, though you’ll want to compare fees, investment options, and plan flexibility first.
Option 3: Roll it into an IRA
This is one of the most common choices. Rolling your old plan into an IRA (Individual Retirement Account) gives you more investment flexibility and control. It can also make it easier to manage your retirement assets under one umbrella. However, not all rollovers are tax-free, the process must be handled carefully to avoid penalties.
Option 4: Cash it out
While tempting, this option can come with significant downsides. You’ll likely owe income taxes on the withdrawal, and if you’re under 59½, you could face a 10% early withdrawal penalty. Plus, you’ll lose the potential for future tax-deferred growth.
3. Be Aware of Tax and Timing Issues
A direct rollover (where funds move straight from one account to another) avoids taxes and penalties. Conversely, an indirect rollover (where the funds are sent to you personally) requires the old plan to withhold 20% for taxes and you must redeposit the full amount (including the withheld portion) within 60 days to avoid it being treated as a taxable withdrawal.
If you have after-tax contributions or Roth 401(k)/403(b) dollars, those require additional attention, since they must be rolled into the right type of account (Roth IRA vs. traditional IRA) to preserve their tax treatment.
4. Don’t Forget About Special Plans
Certain Ohio workers, like teachers or public safety employees, may participate in state-specific retirement systems, like STRS, OPERS, SERS, or OP&F. These plans have unique rules about contributions, service credit, and payout options. Before making any moves, it’s best to talk to a financial professional, like myself, who is familiar with your specific system to avoid losing valuable benefits or service years.
5. Get Help Before You Act
A rollover can be an opportunity to consolidate and optimize your retirement savings, but it’s also an area where small mistakes can be costly. Working with a CERTIFIED FINANCIAL PLANNERTM who understands both the investment and tax sides of the equation can help ensure your decision supports your long-term goals.
Changing jobs is the perfect time to take stock of your retirement savings. Understanding your rollover options helps you make a smart move that keeps your money working for you, not sitting idle, or worse, taxed unnecessarily.
If you’re not sure which path is right for your situation, a conversation with a financial planner can help you to clarify your options and give you confidence moving forward.
Managing Partner, Financial Planner
2300 St. Clair Ave NE
Cleveland, OH 44114
216.621.4644 x1607 office
330.607.2213 cell
nichole@impactcfp.com
Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a Broker-Dealer, and a Registered Investment Advisor.
Cetera is not affiliated with the financial institution where investment services are offered or any other named entity.
Investments are: Not FDIC/NCUSIF insured * May lose value * Not financial institution guaranteed * Not a deposit * Not insured by a federal government agency.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
Before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Please view the Investor Alerts section of FINRA website for additional information.
Posted In: Guest Blog, Saving
