4 Ways to Handle Your Retirement Account when You Move to a New Job
Changing jobs as a physician, dentist, PA, NP, nurse or other medical professional can be a tumultuous experience. Even under the best of circumstances, making a career move requires a series of tough decisions, not the least of which is what to do with the funds in your old employer-sponsored retirement plan.
Some physicians and other healthcare professionals choose to roll over these funds into an Individual Retirement Account, and for good reason. About 34% of all retirement assets in the U.S. are held in IRAs, and 59% of traditional IRA owners funded all or part of their IRAs with a rollover from an employer-sponsored retirement plan.¹ ²
Generally, doctors and others who are in the process of changing jobs should know that you have four choices when it comes to handling the money in your retirement account from a former employer.
First, you can cash out of the account. However, if you choose to cash out, you may be required to pay ordinary income tax on the balance plus a 10% early withdrawal penalty if you are under age 59½.
Second, you may be able to leave the funds in your old plan. But some plans have rules and restrictions regarding the money in the account. Be sure you understand any fees associated with leaving your account in place.
Third, you can roll over the assets to your new employer’s plan, if one is available and rollovers are permitted.
Or fourth, you can roll the money into an IRA. Rollovers may preserve the tax-favored status of your retirement money. As long as your money is moved through a direct “trustee-to trustee” transfer, you can avoid a taxable event.³ In a traditional IRA, your retirement savings will have the opportunity to grow tax-deferred until you begin taking distributions in retirement.
Rollovers can make it easier to stay organized and maintain control. Some physicians change jobs several times during the course of their careers, leaving a trail of employer-sponsored retirement plans in their wake. By rolling these various accounts into a single IRA, you might make the process of managing the funds, rebalancing your portfolio, and adjusting your asset allocation easier.
Keep in mind that the Internal Revenue Service has published guidelines on IRA rollovers. For example, beginning after January 1, 2015, you generally cannot make more than one rollover from the same IRA within a one-year period. You also cannot make a rollover during this one-year period from the IRA to which the distribution was rolled over.⁴
Also, the Financial Industry Regulatory Authority (FINRA) has published some material that may help you better understand your rollover choices. FINRA reminds investors that before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock.⁵
An IRA rollover may make sense, whether you’re leaving one job for another or retiring altogether. But how your assets should be allocated within the IRA will depend on your time horizon, risk tolerance, and financial goals.
Aaron McDonald, RICP®, CExP™
F: 248-647-6523 (8:30 am – 4:30 pm only)
29800 Telegraph Road, Southfield, MI 48034
[email protected] www.medfinityfinancial.com
Aaron grew up in Lake Orion, MI and graduated from Central Michigan University in 1994 with a Bachelor of Arts degree in Interpersonal & Public Communication and Management. Since joining the financial services industry in 1996 he has continued to learn and educate himself for the betterment of his clients. Aaron has earned the Retirement Income Certified Professional, RICP, designation from The American College of Financial Services.
Aaron has a vast amount of experience helping physicians become financially fit. He has helped hundreds of Physicians in their residencies, as Attending physicians and planning their retirement years. Aaron focuses on educating his clients utilizing a unique holistic perspective to achieve financial success while protecting against the many threats that can have devastating effects on cash flow.
Aaron currently lives in Commerce Township with his wife, Amy. He stays active with training for 5k runs, exercises with Amy at Milford Fit Body Boot Camp and continues to train at Japanese Martial Arts Center in Kodokan Judo as time allows.
We are proud to have Aaron McDonald as a DocWorking Trusted Resource.
FOOTNOTES, DISCLOSURES AND SOURCES
¹ Investment Company Institute, 2021
² Distributions from traditional IRAs and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions. If the account owner switches jobs or gets laid off, any outstanding 401(k) loan balance becomes due by the time the person files his or her federal tax return. Prior to the 2017 Tax Cuts and Jobs Act, employees typically had to repay loans within 60 days of departure or face potential tax consequences.
³ The information in this material is not intended as tax advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a tax professional for specific information regarding your individual situation.
⁴ IRS.gov, 2021
⁵ FINRA.org, 2021
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