For Mark Roberts’ Use: Rarely do American workers stick with the same employer for 30 or 40 years these days. At some point in your career, it is likely that you will face a difficult (or perhaps not-so-difficult) choice. Often we change employers to seek higher pay or better benefits, or sometimes life intervenes and we need to move or gain access to different working conditions. Whatever the reason, most of us will face an employment change eventually.

Hopefully the change will be a positive one for you, but in any case, you will face one very important decision: Should you cash out your retirement plan?

Over the years, you’ve accumulated funds within an employer-sponsored retirement plan, but a career change will present the opportunity to make a choice about that money. In most cases, four options are available:

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

Even though it’s the last option listed here, we should state right away that taking the money as a cash distribution is almost always a terrible idea. You will likely trigger a 10 percent tax penalty upon yourself, on the amount withdrawn. And because the amount withdrawn can push you into a higher income tax bracket for the year, there might be an additional tax burden. Of course, the most important reason to avoid this course of action is that you’ll be giving up years of savings, along with the years of interest that would have accumulated on your principal. You can’t get those years back.

So, let’s assume that the last option is not actually an option. What about the first three?

Any time you choose a rollover, please do so with the guidance of a financial planner. Rollovers are complicated procedures, and if not conducted perfectly can also incur enormous tax penalties. You don’t want to take the risk of that happening.

As for leaving the funds in your old plan, there are benefits and drawbacks to doing so (assuming your plan even allows this). One obvious benefit is that you’ll have one less task to accomplish while undergoing a big change in your life. But could it become more difficult to manage two different retirement accounts? Or, could you be missing out on a valuable opportunity?

As you can see, this is a complicated decision. We’re here to help. Just give us a call, and we’ll review the benefits of drawbacks of each option listed above, and help you make the decision that feels right for your situation.