How to Avoid Losing Your Retirement Benefits When Switching Jobs
The average American will shift jobs in about 4 years. Which means that a person could shift from one job to another about ten times throughout their working years.
Despite 401 (k) plans being considered viable from one job change to another, there is still the possibility of losing out on some of these retirement benefits.
Moreover, a working lady that briefly disrupts her career path to focus on parenting is even at a greater disadvantage. When these losses are totaled, they could prove detrimental to your retirement security, even if you attended every day of work during your job change.
That being said, it is vital that one never loses out when it comes to retirement accumulation. Indeed, one has to ensure that the specific money still comes into play, and ensure that they work hard for their future. Fortunately, there are tactics that can come into play to ensure that you minimize any impact in terms of affecting your retirement planning.
First Things First, Analyzing How These Losses Surface
When you change jobs, your previous employer may issue a call for your employment on the last day of the year plan to ensure that the company receives a contribution for that given year.
Moreover, you may find yourself losing out on employer contributions from the previous year. Such contributions could be the 403(b) or the 401(k) profit sharing plans which are affected as a result of time lost during the vesting schedule.
Nevertheless, there are some plans out there that might not have any vesting process at all when it comes to having any company contributions until three years of service have been completed.
That being said, there are other companies that will provide graded vesting after a certain period of time. Additionally, switching jobs means that you will get a lesser number of years in terms of service when it comes to clear benefit plans.
Last but not least, getting a new plan normally requires a certain time frame before you gain eligibility to apply and enter.
Another major problem riddling individuals that change their jobs is their retirement plan assets leaking. Such a circumstance occurs when an employee makes the decision to cash out on their retirement as they exit from their employer.
Despite there being a mandatory withholding of 20%, as well as a penalty of up to 10% for premature withdrawal, there are quite a number of individuals who opt to take the money and face the consequences later on.
Instead of a more viable option, which is to keep their hard earned money with a tax-deferred plan, employees fail miserably when it comes to ensuring their termination benefits roll over, and hence, hurt their chances of economic security in the future.
Having Orphan Plans
Additionally, there are some employees out there that do not issue an election, and hence, their funds end up staying in their previous employer’s plan.
Though this might be advantageous to some point, it will more likely result in the occurrence of unmanaged orphan accounts that do not have any clear investment purpose and might lead to increased costs.
Indeed, not one of these scenarios plays well when it comes to securing a prosperous and successful retirement. To counter this, it means that you will have to come up with a proactive strategy to reduce any disruptions that can take place with your retirement plan and its subsequent accumulation.
Your most viable option will be to have your proceeds rolled over into your IRA account, and look for ETFs or low-cost index funds.
Strive to Take Control
If you have the opportunity, you can time your job shift at the highest possible time to maximize accruals, years of credit service, as well as vesting.
Indeed, it can be beneficial what a day or two difference can make for your retirement benefits.
However, if you happen to be in a serious financial crisis, you can opt to secure your tax assets within a tax-sheltered plan that you can conveniently, economically, and effectively manage.
So whether you choose to consolidate your assets into an IRA, or fund an employer, the main ambition of your strategy should fall on diversification.
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