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By Brian Mayfield - July 9, 2018
When you left your last job, you may have forgotten something—your money. No, not the coins in your desk drawer. Your retirement plan money.
Many people leave their money in a former employer's retirement plan simply because they don't know how to move it elsewhere. They may not even know they have other options, such as rollovers to new accounts.
But because it could be the largest sum of money you've ever accumulated, it's important to be sure you're making the right choice for your future.
Staying in your plan may be the easiest option. Your money will continue to grow tax-deferred and you may not incur the same fees, expenses or penalties as when you move your money or cash it out. But consider this:
Your retirement money is subject to the rules set by your former employer. They can make changes to plan administration and recordkeeping, as well as your investment options.
If your job has changed or you have retired, chances are your financial goals have, too. You may need to reevaluate your old plan to ensure it still aligns with your future goals. And even if you decide to keep the money in place, you won't be able to make additional contributions to the account.
You may not be including old retirement plan money in an overall diversified investment strategy. If the money is heavily invested in one type of asset (like stocks or bonds) and not balanced out with the rest of your investments, it might expose you to unnecessary risk.
Even with paper or electronic statements, it's easy to lose track of an old account, especially if you only check on it once or twice a year. This makes it difficult to know how the investment (and your overall portfolio) is performing.
One common alternative is to roll your money into an IRA with a company you choose. These Rollover IRAs put you in the driver's seat: You decide which company to invest with and which investment options work best for your goals.
You can add to your IRA with additional contributions or other rollovers and can even consolidate all your retirement money. You can also move money to a new employer's plan later, if allowed.1
There are no tax penalties for rolling over money, but some companies could charge more in account fees or expenses than if you leave the money in your old plan.
Rolling over money doesn't have to be hard. When choosing a new home for your money, look for:
Here's how we do it.
Rollovers to a new employer's retirement plan are another option. You'll have many of the same advantages (and disadvantages) as your former employer's plan, but the plan will be more closely tied with your new employer's benefits and communication.
A final option is to cash out your retirement plan. This is the quickest access to your money, but income taxes, a 10 percent federal penalty tax and state tax penalties will significantly reduce the amount you'll receive.2
Still not sure what to do with your old retirement plan money? We can help you make sense of your options.
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1 Special rules apply to Roth assets. Please consult your tax advisor.
2 Taxes are deferred until withdrawal. State and local income taxes may also apply at withdrawal. A 10% penalty will be imposed for early withdrawal. Penalty may apply if you don't meet age requirements.
Diversification does not assure a profit nor does it protect against loss of principal.
Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.