Protecting Your Retirement Assets During a Job Transition

“Congratulations, you’ve landed your new fabulous dream job!” Those are joyous words that many times can mean that you will soon have greater responsibilities which, hopefully, come along with a larger paycheck. Your next steps, then, are to complete all the tasks to transition into the new job. One of the important tasks is to properly address your 401(k) with your old employer. There are options available to you upon leaving your job which would allow you to remain more engaged with your retirement assets.

Rollover your retirement assets. One is rolling over your 401(k) balance to an Individual Retirement Account (IRA) which could afford you the opportunity to structure a portfolio more customized to your financial needs.  Another is rolling the assets to your new employer’s 401(k) Plan. As a current employee you will receive notices of Plan investment changes and educational events thus keeping you current with your new 401(k) assets – something you may miss with your old Plan.

Update contact information. Changing jobs can also facilitate a change in location and include not only moving out of town but also changing email addresses and phone numbers.  It’s always surprising to me when employees leave their 401(k) assets in a former employer’s Plan and then neglect to update their contact information. Employers are required to send out an annual benefit statement once a year and if those statements are returned as undeliverable with no forwarding address and no updated contact information on file, you may find out some years down the road that your assets were removed from the 401(k) Plan and sent to the applicable State for safekeeping on your behalf.

Be keenly aware of any outstanding loans. Some individuals with a 401(k) plan have taken out a loan against their 401(k) assets either for a down payment on a home, for college funding for children, or for more of a personal reason.  If this is your scenario, then you may, for example, be surprised to find out your loan has to be paid back in full within a relatively short time – such as sixty days – of leaving the company.  If the loan isn’t paid as required, the outstanding amount would be considered income and taxes and possibly an early withdrawal penalty would apply.  (Your previous Plan will send you a 1099 and notify the IRS of the same.)

If you have an outstanding loan in your 401(k) Plan and have a job change, are considering a job change, or think your company may be downsizing, request a copy of your Plan’s Summary Plan Description to review the time allotted for collecting loan balances. If possible, make arrangements to secure funding to repay the loan balance in accordance with their procedures.

While it may be tempting to focus on the immediate changes in your life which can occur during a job transition, keeping an eye of how this event affects your 401(k) assets will enable you to be proactive in making decisions which can positively impact your retirement in the long term.

By Kristen Fricks-Roman
Photo by Docent | Shutterstock

Kristen Fricks-Roman CFP®, CRPS®, is a senior vice president of Morgan Stanley Wealth Management, Atlanta. For specific answer regarding your individual situation, she can be reached at kristen.fricks-roman@morganstanley.com.