Using an IRA to Manage Retirement Savings From Multiple Jobs

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young woman using calculator in front of laptopYour first job out of school probably won’t be the last place you ever work. Assuming you’ve saved some money in your workplace retirement plan, you may be wondering what to do with that money when you leave for your next opportunity. Moving that money into an Individual Retirement Account can be an easy way to manage your retirement savings from all your future jobs in one place.

When you leave a job, you generally have four options with how to handle the money in your retirement plan:

  • Cash out of the plan and get your money today
  • Leave the money in your old employer’s plan
  • Roll it over to your new employer’s plan (if that’s allowed) or
  • Roll it over to an Individual Retirement Account, which is an account that allows you to save for retirement outside of a workplace plan.

While cashing out of your plan today to get money to spend is tempting, you will face tax penalties for taking money today that was intended for your future retirement. Those penalties could eat up as much as 40% of your savings. For example, if you cashed out $5,000 of your savings from a 403(b) plan, you could be left with as little as $3,000.

Why not leave the money in the old workplace plan, or roll it into your new employer’s plan?

There are some advantages to these approaches, including paying less in mutual fund fees through an employer’s plan than if you invested in those funds by yourself.

However, by leaving the money in the prior employer’s plan you risk having your retirement money scattered with more than one old employer over time as you switch jobs again, which could cause you to lose track of the money over time. Also, you won’t be able to put aside more money into these accounts, and where you can invest that money is limited to the investment choices offered by your old employer.

By rolling over the funds to an IRA, you can create a “home” for all your rollover assets from future jobs, making it easier to manage your funds.

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