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Janice France-Pettit: Protecting your retirement when leaving or changing jobs

Union Bank of California

Posted: July 9, 2010 3:40 p.m.
Updated: July 9, 2010 3:40 p.m.

When leaving one employer for another, the potential of new opportunities can be exciting. However, the process of possibly relocating, leaving colleagues and the choices you need to make about what to do with your retirement funds may also make these transitions challenging for some.

Considering the amount you have invested and the significance of retirement as a key component of many financial plans, there are a number of factors to review when deciding what to do with your retirement savings during a transition.

Consult with your financial planner and evaluate the following options, which may help you determine smart ways to protect your hard-earned retirement savings and allow them to reach their full potential in the future.

Move savings to another account
One option is to make a direct rollover into another qualified retirement account. This can be an individual retirement account (IRA), or if you are starting a new job, a retirement savings plan such as a 401(k) with your new employer. This popular choice lets you continue to make contributions to your savings and allows you to benefit from continued tax-deferred growth.

Keep the money where it is

If your current account balance is more than $5,000, you may be able to continue with your former employer's retirement savings plan. In this case, your investment earnings would benefit from continued compounding; however, you would not be able to contribute any more to these accounts.

Take the cash
The disbursement of part or all of your retirement savings is generally an option for those who need access to funds immediately. Keep in mind that this cash distribution has drawbacks - the money you receive is subject to a mandatory 20-percent tax, in addition to a potential 10-percent penalty if you are younger than 55 years old when you leave the company.

Taking the money and spending your retirement savings also eliminates any future compounding that money would have been earning in a tax-deferred account.

Invest in your future
Should your new job result in an increase in salary, try to set aside a portion of the increase toward your retirement nest egg. This may help you reach your long-term financial goals. Furthermore, contributing a portion to an emergency fund may keep you from drawing on your retirement when facing any financial hardship.

How you handle your retirement savings when you change jobs can impact your financial future. Thinking through the process, weighing all of your options and consulting with a financial advisor may position you to maximize the benefits of your income today and enjoy an ideal retirement.

Janice France-Pettit is a senior vice president and regional manager for Union Bank, overseeing the Simi Valley, San Fernando Valley and Antelope Valley regions. Her column reflects her own opinion and not necessarily that of The Signal. The foregoing article is intended to provide general information about retirement planning for businesses and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor.



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