Rollover Plan

Whether you are retiring, starting a new job or going into business for yourself, leaving your current job raises a number of important issues, including what you should do with the money you have accumulated in your retirement plan.  It's important to understand not only the differences among these options but also the tax implications of each.  If you are not careful, up to 50% of your savings could go to pay taxes and penalties.

Four options for your retirement savings may include:

1. Take it in cash
   Cashing out of your retirement plan can be tempting, especially if there is something that you had been wanting to buy, but you didn't have the cash.  Now that you have the cash available, why not treat yourself?  This option can also be tempting if the amount doesn't seem large enough to make a difference in the long run.  Be very careful before you choose this option.  You could loose up to 50% of your savings in taxes and penalties.  Once you take this money out, you may not be able to put it back in a tax-deferred plan.  And the most costly feature of this option may be the missed opportunity to accumulate enough money for your retirement.
   
   
2. Leave it where it is
   Whether you are retiring or changing jobs, your employer may let you keep your retirement savings in your old plan after you leave your job.  Your money will remain tax deferred until you withdraw it at retirement, but your choices may be limited.  For example, you might not be allowed to make additional contributions or take out loans.  Leaving your money where it is may make for record keeping headaches for you if you change jobs frequently.
   
   
3. Roll it into your new employer's plan
   If you are changing jobs, you may be able to roll your retirement savings over to your new employer's retirement plan.  This option has the benefit of keeping all your retirement assets under one roof and tax deferred.  However, depending on your new employer's plan, your options may be limited.  Withdrawals and distributions will be subject to the plan provisions.
   
   
4. Roll it into your own IRA
   In a traditional IRA your savings remain tax deferred until you withdraw the earnings at retirement.  With an IRA you may also have more savings choices while you are accumulating money for your retirement, and you also may have more flexibility when it comes time to use your retirement savings.  With your money in your own IRA rollover account, your retirement savings are under your control, rather than being subject to all of the rules and regulations of your former employer's plan.

You should have a clear and definite financial strategy worked out when you leave your job. Remember, fifty-three percent of American workers expect that their personal savings will be their biggest source of income in retirement, and inflation will place an added burden on how much and how well you save for retirement because even a little inflation can erode the purchasing power of your retirement savings.  Whether you are just starting out, nearing retirement, or somewhere in between, make an effort to understand the issues so that you can make smart financial choices.

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