Let’s Talk About Rollovers

If you’re retiring or changing jobs, one of the biggest questions you may face is what to do with your old employer-sponsored retirement plan account. It’s a critical decision that can have a lasting impact on your financial future, so it’s worth understanding your options.

If You Were Changing Jobs or Retiring

You may be wondering how to handle the retirement savings you’ve accumulated. Should you leave it where it is, move it, or cash it out? The good news is you have several options.

Your Four Main Options

Generally speaking, you have four choices:

1. Cash out the account 
2. Keep your money in your former employer’s retirement plan
3. Roll over the funds to your new employer’s plan
4. Roll over the funds into an Individual Retirement Account (IRA)

Each option comes with its own pros, cons, and financial implications.

What Should You Consider?

When deciding, keep the following in mind:

• Tax implications
• Investment options available
• Account fees and expenses
• Additional services offered
• Withdrawal flexibility and rules

Let’s dive deeper into each option.

Option 1: Cashing Out Your Account

Cashing out gives you immediate access to funds—but at a cost. You’ll face:

• Federal and possible state income tax withholding
• Mandatory 20% federal tax withholding
• Potential for a 10% early withdrawal penalty if you’re under age 59½
• Higher taxes at filing, depending on your income bracket

Cashing out is almost never a good idea, especially if your goal is long-term financial security in retirement.

Option 2: Keep Your Money in Your Old Employer’s Plan

Some retirement plans allow you to leave your money where it is, as long as you meet the account balance requirements. Benefits include:

• Continued tax-deferred growth
• No immediate action required

However, you cannot continue contributing, and you may have limited access to services or investment options compared to other accounts.

Option 3: Roll Over to Your New Employer’s Plan

If your new employer accepts rollovers, you can move your old plan into the new one. This:

• Consolidates your retirement savings
• Makes tracking and managing your money easier
• Continues tax-deferred growth
• Has no taxes withheld or penalties

This can be a great choice for simplicity and efficiency, especially if your new plan offers strong investment options and services.

Option 4: Roll Over to an IRA

Rolling your funds into an IRA offers:

• Tax-free transfer
• Continued tax-deferred growth
• More control over your investments
• More flexible withdrawal options
• Access to a broader range of investment choices
• Possible access to a financial advisor (with added cost)

This option may be ideal if you want flexibility and broader investment control.

The Bottom Line

There’s no one-size-fits-all answer. Your best option will depend on your personal financial situation, retirement goals, and how much control you want over your investments.

Make sure to evaluate:

• Investment options
• Account fees
• Withdrawal rules
• Services offered
• Tax consequences

All of these can significantly affect your retirement savings.

Still Not Sure?

If you’re unsure about what to do with your retirement plan, it’s a smart idea to talk with a tax or financial professional. They can help you evaluate your choices and make a decision that supports your long-term retirement readiness.

It may also be beneficial to consult with a financial advisor to ensure your investment choices align with your personal financial goals.