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So you've decided to make the "Big Move". You've been at your current company for ten years, but you felt it was time to make a change and you have accepted a position at an up and coming high tech start up. As you are saying your last good-byes to everyone, the personnel director hands you a fat package and says: So what would you like to do with your company 401(k) account? In all your excitement you hadn't given a thought to your retirement account. You've done what all financially savvy women do and you've diligently set aside money into your retirement account every pay period, but you have no idea what to do now.
Choosing the next step for your retirement savings is very important, no matter how much you have in your account. If you don't take the appropriate steps, you will be hit with unnecessary penalties and taxes that will cost you lots of money. Although each company's retirement program is different (check with either your personnel director or plan administrator to obtain details about your particular plan), here are some basic issues to consider.
Assuming you are not ready to retire and you have chosen to rollover your existing account into either a self-directed IRA or another qualified plan. Do Not request a check directly from your old employer. Instead have the funds directly roll over into your new account – known as a "trustee-to-trustee" or "conduit" transfer. Through a conduit transfer you will avoid early withdrawal penalties (10% if you under the age of 59 ˝) and taxes. Prior to rolling over your retirement savings, make sure you have made the appropriate arrangements with your new company's qualified plan or have opened a self-directed IRA account at a financial institution. When you establish your new qualified plan account or open the self-directed IRA, talk to the account representative and let them know what you will be doing and they will assist you in the process.
If your new employer does not offer a qualified retirement program or they require a waiting period before you qualify for the program, it is best to roll over your current savings into a totally separate IRA account. If you already have an existing IRA account, do not commingle the funds from your company retirement account with you other individual IRA. This will allow you the flexibility to transfer these funds into a qualified company retirement plan in the future; should you move to a different company at a later date that offers a retirement program or after the waiting period is over.
You also have the option of taking the money directly and rolling the funds into an IRA or another qualified plan at a later date as long as you do it within 60 days, but the plan administrator is still required to automatically withhold 20% of the taxable portion for taxes under the Federal Withholding rule. This is a more costly and less desirable method of transferring your retirement savings.
You've made a great career decision by taking that challenging new position at the hot, fast-moving company. The decision about your retirement savings is equally as important for your future – so make the right choice.
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