The average baby boomer has had 11 jobs during his or her working life.
I’m not one, but I’m close enough that when I stumbled upon that figure in a Bureau of Labor Statistics report, it grabbed my attention.
I’ve been blessed, I think, to have jumped jobs fewer times. But over the years I’ve heard a lot of questions from people trying to figure out what to do with retirement plans they’ve left behind as they’ve switched jobs.
Thankfully, your options are pretty straightforward no matter how many times you have switched employers. Essentially, you have five. The key is to understand those options and the implications of one choice over another. Whether you’ve moved three times or 33, make sure, by choosing well, that your changes are not handicapping your long-term retirement plans.
- Cash out. I usually hold this until the end as an afterthought and an always-avoid alternative. But truth be told, this is the one I get the most questions about. So I listed it first, solely for that reason; I still think you should avoid it. Above and beyond the taxes and potential early-withdrawal penalties, this move – especially when repeated nearly a dozen times – is a recipe for missing your retirement goals.
- Leave it. Most plans require a minimum balance, but beyond that, if you’ve got a plan you like with investment options and expenses that suit, there’s nothing wrong with staying put. Of course, you’ll want to keep up with the old plan and how it fits into your overall portfolio.
- Roll it to a Roth IRA. This move could pay big dividends in the form of tax-free retirement income, but it’s one you shouldn’t make without consulting your tax adviser. If you only have a Roth 401(k), keeping the money under the tax-free Roth IRA umbrella could be an apples-to-apples adjustment. However, moving money from a traditional employer plan to a Roth IRA will require you to pay tax on the money that hasn’t been taxed. That could cost you big bucks.
- Roll it to a traditional IRA. If you don’t like the employer plan, want a wider array of investment options or desire a single consolidated account to pull together all your old retirement plans, consider this option. Setting up a traditional IRA as your “retirement hub” might be ideal. Do it in the form of a direct rollover, which goes from the old plan to your IRA instead of coming through you. That allows you to avoid potential tax headaches and mandatory withholding, which you would have to make up yourself to avoid taxes and potential penalties on the money withheld.
- Roll it to your new employer plan. This may be where the bulk of your new contribution efforts are going, so if it’s a good plan you may want to consolidate all your old plans with your new employer. However, if you see another 11.7 moves in your future, maybe not.
J.J. Montanaro is a certified financial planner with USAA, The American Legion’s preferred provider of financial services. Submit questions for him online.