Changing jobs? 3 options for your retirement savings

401k rollover

Key Points

  • When you join a new employer, you may have new investment choices for your employer-sponsored retirement savings plan.
  • Check out your options so you can make an informed decision.
  • Talk with your advisor about the best approach for your goals.

When changing employers — as many professionals are doing given the strong job market — it’s important to consider three options for your retirement savings.

We asked Amy Diesen, Vice President of Retail Retirement Plans at Ameriprise Financial, to highlight what to discuss with your financial advisor.

Option 1: Leave savings with your former employer

In certain circumstances — such as if you have employer stock that has grown significantly in value — you may want to consider leaving your savings in your former employer’s qualified retirement plan.

“Tax breaks for employer stock distributed from a qualified plan will be lost if you convert to an individual retirement account (IRA),” Diesen says. “One option is to take a lump-sum distribution, transfer the employer stock to a taxable brokerage account and pay taxes at the generally lower capital gains tax rate when you sell the shares.”

If you choose to leave savings in your former employer’s retirement plan, be sure to track it. Knowing your complete financial picture can help both you and your advisor monitor your progress and maintain an asset allocation mix aligned with your goals and risk tolerance.

Option 2: Move savings to your new job’s plan

It could make sense to transfer savings from your former employer’s retirement plan into your new company plan. “Your advisor can help you compare the investments and features of both plans to decide which one better supports your goals,” Diesen says.

Savings in an employer’s qualified retirement plan are also fully protected from creditors. If you roll over your savings to an IRA, you will retain only federal bankruptcy protection. (State law determines the protection from creditors outside of bankruptcy.)

If you plan to retire early, most employer-sponsored qualified plans allow participants age 55 or older to take distributions without the 10% IRS premature distribution penalty. Traditional IRAs generally don’t allow penalty-free distributions until age 59 1/2. 

Option 3: Roll your retirement savings into an IRA

This option may provide you with greater control of your retirement assets and more growth potential while maintaining tax benefits.

“With an IRA, you’re the owner of your retirement savings, rather than a participant in the employer’s plan,” Diesen says. “An IRA enables you to select from a wider array of investments than those typically offered through company plans.”

Consolidating your retirement savings can also help you plan more strategically for retirement. “By having all your investments in one place, you’ll see the full picture of your retirement savings,” Diesen says. “Your advisor can then help you manage and diversify the assets based on your goals, risk tolerance, tax situation and the number of years until retirement.” 

An IRA can also provide you with more flexibility around future distributions. “Unlike an employer’s qualified retirement plan, an IRA allows you to decide the timing of withdrawals. This can be a big plus for your retirement income strategy,” Diesen says.

We can help

Whether you’re joining a new employer or revisiting your asset allocation at your current job, check in with your advisor to help ensure your retirement savings decisions support your goals.