Leaving Your Job? Here's How That Affects Your Retirement

There are a lot of moving parts to leaving a job. Depending on the type of savings or retirement plan you were offered through your employer, there can be some critical (albeit confusing) steps that you need to understand and take.

Being informed of these steps is important for anyone looking to leave or change employment. Let’s break down some of the considerations you’ll want to keep in mind when leaving your job. 

The ‘Great Resignation’

Today’s job market is fueled with a wave of employers seeking to find new work. Over 40% of today’s workforce is actively seeking new employment. Education isn’t immune to this phenomenon. The National Education Association (NEA) polled teachers and found that “55% are more likely to leave or retire from education sooner than planned because of the pandemic.”

IIf you are a part of this tsunami, it is smart to consider the impacts that resigning may have on your retirement.

Do you have a 401(k) or a 403(b)?

Simply put, a 403(b) plan is the Minnesota educators’ equivalent to a 401(k) plan offered by other employers. Have you considered how either of these plans will be affected if you leave your job? 

The good news is that most of the time, a transition from one employer’s plan to another can be simple. Work with your financial advisor to handle the paperwork as you make the switch. At Gretchen Rehm Financial, we can help you navigate this process, which could include transitioning your old retirement plan into another retirement product, such as an IRA or Roth IRA.

Options for Your Plan

With some smart thinking ahead of time, you can make a calm, researched, and sensible choice for your retirement plan. There are three common outcomes when a worker leaves one job for another.

1. Rollover into a new retirement plan

Oftentimes, your new employer will offer a plan similar to that of the old. By rolling over your plan, you can potentially avoid fees for taking the funds out before retirement, not to mention tax breaks for not taking a payout. Additionally, this choice allows you to stay on your intended path, and continue saving as you were in your previous role. 

2. Cash out your retirement plan

Some people choose to take the cash they’ve saved and simply withdraw the funds when leaving a job. This can be a decision prompted by need, like if you need to fill a gap in your finances or pay off debts.

Just remember cashing out your retirement early can incur costly fees. Retirement savings plans are meant to be for just that… retirement. If you withdraw funds prior to that designated time, you are subject to penalties. This can mean a large loss of funds, so you should weigh your options carefully with the advice of a financial professional. 

3. Roll your retirement plan into an IRA

If your new role doesn’t offer a plan, or if you’d like to keep the two separated, you will have the option to roll your old retirement plan into an IRA. This will allow you to continue to save, skip out on the penalties and fees, but also keep those earnings in their own space.

In addition to IRA options, some plans will also let you carry on with the investment firm even if you are no longer with your employer. 

Prior to rolling over assets from an employer-sponsored retirement plan into an IRA, it’s important that you understand your options and do a full comparison on the differences in the guarantees and protections offered by each respective type of account as well as the differences in liquidity/loans, types of investments, fees, and any potential penalties.

A Helping Hand

The very best advice to take away from these choices is to make an informed decision. To do so, I highly recommend consulting a professional.

Financial advisors, like myself, have spent years learning the best practices for such change. A new job is a time of change and transition. You have a lot on your mind and plate. It is smart, during such difficult times, to seek the advice of the pros.

If you are ready to talk about your unique situation, have questions about new job transitions, or simply want to be sure you are properly saving for your financial future, reach out to our agency. You can make an appointment online: https://go.oncehub.com/TheGretchenRehmAgencyInc. Or visit our homepage here to understand our services: https://www.gretchenrehm.com/.

Change can be scary, including changing jobs - but with the right guide, the financial side of things can go smoothly!