Don't Let a Career Move Sabotage Your Retirement Fund
By Jean Chatzky
October 01, 2008
Retirement investments all too often become casualties of a job change. Here's how to keep your savings on track.
Stay until you're vested. To encourage their employees to save for retirement, most companies will cough up some cash—sometimes as much as 50 percent of your own contribution—to add to your account. The catch? You have to be vested to keep the money they've contributed if you decide to move on. Some companies grade the vesting over five years, meaning if you leave after one, you get to keep 20 percent of their contributions,after two, you can keep 40 percent, and so on. At others, you're automatically vested after three years—leave before, and you get nothing.
Don't cash out. According to research from Hewitt Associates, 45 percent of employees cash out their 401(k) when they leave a job. Bad move. You'll pay taxes and a 10 percent penalty for pulling out early, which can easily add up to thousands of dollars.
Roll over. It's generally not a good idea to leave your retirement savings with your previous company, because who's to say it will be around for the next 20 or 30 years? Instead, you can roll over your savings into an IRA. Have HR at your old company send the money directly to your new account—if they cut a check in your name, the IRS assumes you cashed out and your tax bill will be sky-high.
Don't delay contributions. No matter how long you plan to stay at a job, always participate in the company's 401(k), particularly if it provides matching dollars. Putting off saving for retirement can potentially cost you big money (I'm talking tens of thousands, if not more), and you can always roll it over if and when you move on.