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Options to consider when you change jobs

A change in your job status often means that you have some wide-reaching financial decisions to consider. Whether you’re getting ready to retire, moving into another career, or leaving your employer to pursue other interests, you’ll probably want to consider making some decisions about the assets in your employer-sponsored, tax-deferred 401(k) or 403(b) plan.

Essentially, you have four options from which to choose regarding your tax-deferred assets: you can move your assets into your new employer’s tax-deferred plan, leave the assets with your former employer, take a lump-sum distribution, or roll the assets into an IRA Rollover. Each option has benefits and pitfalls. Here is a quick overview of your options:

1. Move your assets. If you’ve recently begun a new job, and if your new employer’s tax-deferred plan allows it, you can move your assets from your former employer’s plan into the one offered by your present employer. Keep in mind that many companies require you to satisfy a waiting period before you can enroll in their plan. In addition, while your assets will continue to grow tax-deferred in the new account, you’ll most likely have to make new investment choices.
2. Leave the assets with your former employer. This option assumes that your former employer’s plan has a provision allowing you to leave the assets where they are. On the plus side, leaving your assets with your former employer allows you to continue your investment strategy without interruption. A less-positive outcome is that you may discover that your former employer limits investment choices for former employees. You’ll also remain subject to the plan’s provisions regarding withdrawals and distributions.
3. Take a lump-sum distribution. Depending upon your financial situation, this may be an attractive option. However, it comes with a few unattractive tax consequences. The lump-sum distribution will be considered part of your taxable income if you don’t deposit it into a tax-deferred account, such as an IRA Rollover, within 60 calendar days. In addition, if you’re under age 59 1/2 when you take the distribution, you will probably owe a 10% early withdrawal tax penalty on that money. You will also lose the potential for continued tax-deferred growth, which will reduce the accumulating effect of compounding on your retirement savings.
4. Roll the assets to an IRA. A Rollover IRA continues your ability to have your assets grow tax-deferred. In general, Rollover IRAs also provide you with greater control over your retirement account by offering a broader array of investment choices than are available with most employer-sponsored plans. If you opt for a direct rollover from your former employer-sponsored plan, you avoid having to receive the proceeds and complete the transaction within the 60-day window.

If you are like most investors, your employer-sponsored retirement plan represents a large percentage of your overall portfolio. How you handle these assets today could have a great impact on your income tomorrow. For information about a Nationwide^® Rollover IRA, please call 1-800-848-0920. Be sure to consult your tax advisor regarding the options that best suit your needs.