Changing Jobs? Consider these Tax-Smart Tips for Your Retirement Savings Plan

Check out the latest guest post by Rick Pendykoski from Self Directed Retirement Plans LLC.  His bio is at the end of the post.

Of all the investments and assets you own, your retirement fund is typically the largest as well as the most valuable.  Whether you’re putting money into an IRA every month or relying on an employer-provided 401k plan, the money you save today will keep growing over the years.  By the time you retire, there should be a healthy sum waiting for you.

Of course, that will only happen if you’ve managed your retirement savings properly, especially when you change jobs.  A new job might give you more and better opportunities, but it can also have a negative impact on your next egg if you don’t handle your savings the right way.

This means taking a good look at your personal finance goals, putting away as much as possible, and making the most of the tax breaks available to you.  Check out these tips for maximizing your retirement savings when you’re changing jobs:

Consider these Tax-Smart Tips for Your Retirement Savings

Participate in a Plan

The first step is the simplest.  Start saving, if you haven’t already!

Participate in employer-sponsored 401k plans if you’re eligible.  Not only will you have tax-deferred savings this way, but matching employer contributions are essentially free money going into your retirement fund.  Look at the long-term benefits when you’re tempted to spend instead of saving and make diversified investments to reduce your risk.

Check if your workplace offers access to a financial advisor to help employees with investment planning.  Getting professional advice can help you manage your investments for higher gains and better tax benefits.

Don’t Take Money Out

If you’ve invested in a 401k, avoid taking distributions from it or a loan against it when you quit your job.  This may be tempting when you’re between jobs or just starting a new one, but you will have to pay income tax distributions as well as a 10% early-withdrawal penalty if you’re under the age of 59%.

If your new employer offers a 401k plan, join it and make the maximum contributions you can.  Managing more than one plan can be difficult.  If you have an existing 401k plan or IRA, this is a good time to review the benefits and consider rolling over to the new employer’s plan.

Make the Most of Matching Contribution

The minimum amount you should aim to contribute is what your employer matches, e.g. if they will match half your contributions up to a certain percentage of your earnings, put in at least that percentage.

Aim to increase your contributions by at least 1-2% every year.  Along with the tax benefits from contributing more to your retirement fund, this also lets your leverage the power of compounded interest.  The more you contribute to an employer-sponsored plan now, the more time your money will have to grow.

Retirement Savings

Rollover to an IRA

Consider rolling over your old 401k to an IRA if you’re joining a plan sponsored by your new employer.  While managing two accounts may seem counter-productive, the benefits could be huge. With an IRA, you enjoy complete freedom over where your funds will be used.  Whereas a 401k that only offers limited options.

Based on your investment needs, you can invest money from your old 401k in a wide range of financial vehicles, and this allows you to diversify your portfolio for better risk management.  It may also help your retirement savings grow at a much faster pace, especially if you get expert investment advice from a professional.

Pay attention to the Rollover Method

Lastly, make sure to find out how much your old employer deals with rollovers from your old 401k to an IRA, i.e. whether it’s a direct or indirect rollover.  If you receive a check, you need to make an indirect rollover by depositing the money into your IRA within 60 days (after which it will be taxed and may incur a penalty).

The check will also be subject to a 20% federal income tax withholding.  So you need to add these funds on your own.  Then rollover the entire amount to your IRA in order to avoid income tax and penalties.


Have you used any of the tips above for your retirement savings?


Bio:  Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ.  He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & for his own blog for Self Directed Retirement Plans.  If you need help and guidance with traditional or alternative investments, email him at [email protected] or visit


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