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| Keep Your Savings in the Company Retirement Plan |
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If the plan allows, perhaps the easiest way to have your retirement money continue to grow tax-deferred is by simply leaving the assets in your previous employer's plan. There's typically little, if any, paperwork to complete and you'll avoid any early withdrawal penalties. In some cases, a minimum account value must be maintained, so check with the your previous firm's human resources representative to be sure that this is a viable option.
Another benefit of this approach is that your asset allocation strategy will remain intact, as your investments in the plan will not change. If the plan's provisions permit, you may also be eligible to take loans from the plan.
You should be aware that there could be several disadvantages to this option. For example, your former employer may charge an annual or monthly fee for allowing you to remain in the plan. The plan's provisions may limit your ability to take distributions, and certain features, such as loans, may not be allowed. Your investment options are also limited to what the plan offers at any given time. And there's always the possibility that the company could be acquired or radically change the plan in the future. These issues may not be of concern if you're planning to retire in the near future. However, if you're many years from retirement, you may be better served by rolling over your assets to another tax-deferred account like an IRA.
If you choose this option:
- Determine if the plan's investment and service options meet your needs
- Ask your previous employer if you are eligible to keep your assets in the plan
- Inquire whether the plan limits options for inactive or retired participants
- Determine if any paperwork needs to be completed
- Don't forget about outstanding loans—if you don't repay the balance, the IRS will deem the loan to be a distribution from your plan. If this occurs, you'll have to pay current federal, state, and local taxes and you could incur the 10% early withdrawal penalty.
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