For Mark Roberts’ Use: The recession may have created high unemployment rates and significant financial difficulty for many American households, but many reacted by holding onto their jobs longer. The average length of employment has lengthened, but you still may find yourself moving on to a new job at some point in the near future. When you change employers, you usually face a decision about funds that have accumulated in your employer-sponsored retirement plan.

In general, you have four options:

    • Leave the funds in your former employer’s plan (if allowed)
    • Roll the funds over to a new employer’s plan, if your new employer has a retirement plan and allows a rollover
    • Roll the funds over to an IRA
    • Take all or part of the funds as a cash distribution

Each of these options carries its own advantages and disadvantages. But if you want to preserve the tax-advantaged status of your retirement assets, it would be wise to choose one of the first three options.

But be careful in how you choose to operate your rollover! Taking a distribution paid out to you from your former plan will be subject to a 20 percent federal income tax penalty. Beginning from the date of the check, you will have 60 days to roll over the entire distribution to an IRA or new employer-sponsored plan. If you fail to complete the rollover, this money will be considered a taxable distribution by the IRS.

At first, taking a cash distribution could seem like a good idea. Perhaps you want to pay off debts or purchase a home, and easy access to that money may be tempting. Unfortunately, taking the money out of your account could trigger a 10 percent early withdrawal penalty. You could also be pushed into a higher income tax bracket for the year, and owe additional federal taxes. Not to mention that depleting your retirement account now could cause serious financial hardship when it’s time to retire one day!

If you’ve lost your job or are changing jobs, the event can be stressful and trigger impulsive decisions. Remember to consult with your financial advisor about the benefits as well as negative consequences to any of your options. Sound financial planning now will equal a healthy and happy retirement later.