Saving for Retirement in a Job-hopping World

You might change jobs for a variety of reasons—more responsibility, better pay and benefits, or relocation. When you change jobs, you'll have to decide what to do with your retirement funds, including money you contributed and vested company contributions. Vesting refers to the portion of any employer matching funds that you own. Leaving a job before you're vested in your employer's retirement plan can deprive you of contributions your employer made to your account.

Retirement Plan Choices

Here are some options that are typically available. Your financial and tax professionals can help you to make informed choices.

1. Cash Out Your Account

You can choose to withdraw your retirement savings when you leave a job. Your employer will send you a check for the balance, minus any required tax withholding. If you keep the cash, income taxes may be due—and if you're under age 59 1/2, an additional 10% penalty may be due. Alternatively, you'll have 60 days to put that money, including any tax withheld, into a new tax-qualified account.

2. Leave Money in Your Former Employer's Retirement Plan

You may be able to leave your money in your former employer's plan. This might be a good option if you have a substantial account balance and like the plan's investment choices, or if your new employer does not offer a similar plan. Remember that leaving money in a previous employer's plan could make your account harder to manage.

3. Move Money to a New Employer's Plan

If your new employer permits rollovers, you may want to roll over your account balance to your new employer's plan. That way, you'll have all your retirement savings in one place, making it easier to manage your investments. By asking your former plan administrator to transfer the funds directly to your new account, you'll avoid tax withholding and delay paying potential taxes and penalties.

4. Roll Over to an IRA

You can also ask your plan administrator to transfer funds directly to an individual retirement account (IRA) that you've set up. An IRA may give you a wider range of investment options than you have in an employer's plan, and you have full control.