Changing jobs? Don't leave money behind

Robert Wroblewski |

A tenured employee used to be revered. Now, if you are at your job for longer than two years, you are not considered ambitious and didn’t play your cards right.  In today’s tight job market, employees are testing their meddle by putting themselves out there. The great resignation is in full force and unemployment numbers are at all-time lows. 

Leaving your job to develop your career, ensure a pay raise, or take advantage of coveted company benefits that promise more quality of life is still a trend with green shoots. If you are leaving your job for its work-from-home benefits or more exposure to the company brass – just remember as you give your two weeks’ notice to keep track of your current employer-sponsored plan/401(k).

Keeping track of your employer-sponsored 401(k) and other savings plans as you transition from job to job can easily get lost in the shuffle. 

Here are 3 good reasons why you should definitely take advantage of any employer-sponsored plans offered to you and ensure that your savings follow you to a new position:

You can’t spend it if it automatically goes into savings!

Employer-sponsored plans are a great way to stash tax-deferred contributions to save for retirement. 

Does your job offer a 401(k), 403(b), or another tax-deferred employer sponsor plan? Find out by talking to your company’s Human Resources department or your direct supervisor. 

Most employers will offer a safe harbor match or other defined contribution amount that is considered free money—matching a percentage of what you, as an employee, contribute out of your paycheck. 

I would also add that when you save regularly into a retirement plan and the market goes down, you are buying more shares “on sale” so to speak. The same contribution buys more shares, and assuming the market comes back up in the long run, this is beneficial. This is called dollar cost averaging , and it increases the value of your account over time more than in the market were just steadily going up and becoming more expensive.  

You can utilize online tools like 401(k) Optimizer®* where you can get real money manager advice on how to invest your money based on a risk-tolerance questionnaire. Ongoing monitoring and attention to your contributions can yield you significant long-term growth. 

One note of caution, if you access your 401(k) savings account for an early withdrawal, you may receive a 10% penalty, but there is a big incentive to let the money grow: compounding tax-deferred growth.

In this case, you CAN take it with you

Would you want to take your 401(k) with you when you change jobs? 

That may depend on whether you are moving to a company that allows you to rollover your 401(k) from your former plan into a new employer-sponsored plan. 

Maybe you are going out on your own and want to use the money for startup entrepreneurial costs and roll it into a Solo 401(k).

Or, your former plan may allow you to keep the funds in the same account even though you separated from service from the company you originally opened the 401(k) with. 

Or, you need the money so you take the funds in a form a check for now and pay a penalty for early distribution on the funds withdrawn, then have 60-days to complete a rollover of whatever funds may be left.

Whichever option you decide, it’s important when you leave the company you don’t leave the funds in the rearview like the job. 

Here are the 3 key things you will want to do once you leave your employer.

  1. Download a PDF of your 401(k) statement that includes the following: 
    • your registration title, which includes the titling of the account which may be in the name of sponsor company for the benefit of (FBO) “your name
    • account number
    • your current mailing address
    • the advisor’s office number and address.
  2. Ask your new Human Resources department if they have an employee-sponsored 401(k). If so, ask for a copy of the plan sponsor document that explains how it works.
  3. Review the pros and cons of rolling over your employer-sponsored plan to an Individual Retirement Account (IRA) with your financial planner.

As with any account you own, make sure you keep track of it by knowing how to access your account online and/or keep in touch with the financial planner that is monitoring the account for you. 

The last thing you would want to have happen is if you change addresses and forget to update your address on your old 401(k). 

This is common. The 401(k) company has the right to cut you a check and send it to your last address on file before you reach retirement. This could potentially cause tax penalties and fees if you fall below the minimum account requirements.

IRAs offer an additional savings option

Yes. If you have earned income you can open a traditional pre-tax IRA or an after-tax Roth IRA

Even if you don’t plan on rolling over your 401(k) into an IRA right away you still want to consider the benefits of tax-deferred growth that an IRA can provide once you have taken advantage of your employer-sponsored plan’s match. 

Many discount brokerage firms offer no fees for opening IRAs and give you time to fund them. In 2022 you can contribute up to $7,000 if you are 50 years old or better. If you are younger than 50 then you can contribute $6,000 in a calendar year. 

Set a goal to contribute to a Roth IRA for after-tax up to $583.33 a month if you are 50 or older or if you want to make a deductible contribution go for the traditional IRA.

If you move your money from a 401(k) to any IRA, make sure it goes like-to-like. Many times, 401(k) statements make it hard to distinguish pre-tax from after-tax contributions. So, it’s best to call into your 401(k) company and ask the representative for shares invested in each tax status.

There are a lot of moving parts to consider when rolling over your 401(k). It is best to consult someone you trust if you have questions. Schedule a consult with a fiduciary to review your accounts regularly – at least annually. It is exciting to move forward in your career or reach your retirement age – whichever end of the spectrum remember to pack your 401(k) or employer-sponsored plan with you before you the door hits you on the way out. 

* Treece Financial offers access to 401k Optimzer® to our clients and friends. Interested in getting access for yourself? Set up a quick consult with us to get started.

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Related Resources:

Choosing a Retirement Plan that Fits Your Business

Compare a 403(b) with a Roth IRA

Investing in Safety: Your Dollars Won't Disappear with these Financial Safeguards


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