Weigh Retirement Plan Choices Carefully When Leaving an Employer

Bradford Winton
May 20, 2009 — 1,337 views  
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We all like to think that we make rational and wise decisions when managing our money. But most of us are influenced far more by our emotions than our brains. Why do smart people make irrational investment decisions so commonly and so easily? The fascinating study of behavioral economics and decision science fills many books, but let's look at a few of the ways in which investors' minds play tricks on them.

You've packed your belongings, said goodbye to colleagues and made it through your last day at work. The good news is you're leaving with a sizeable retirement plan balance. Care must be taken in handling your assets. With 64.5 million Americans participating in defined-contribution plans in 2004, including 44 million participating in 401(k) plans*, you are not alone in deciding what to do with your plan. Your options include the following.

Cashing Out - Least desirable option. You will receive a check minus 20% withholding, and unless employment is terminated during or after the year you turn 55, withdrawals before 59 are subject to a 10% penalty in addition to income tax.

Leave with current plan - If you have more than $5,000 most plans will let you stay. This may be an option if you like the investment options. However, this choice usually leads to account neglect, and provides very little flexibility.

Rollover to new employers plan - If you are changing jobs and your new employer allows it, you may roll your money into the new employer's plan.

Rolling to an IRA - Perhaps the best choice is to roll over your plan balance to an IRA. You are no longer limited to the investment choices of your old or new employer, and can now access stocks, bonds, other investment vehicles.

Whatever choice you make, always consult your financial planner to avoid any mistakes.

*Source: Profit Sharing/401(k) Council of America

Bradford Winton


Education: -CHARTERED RETIREMENT PLANNING COUNSELORâ„¢ "“ The College for Financial Planning -Rule 144 Specialist for Stock Options and Restricted Stock -Certificate in Leadership "“ National Outdoor Leadership School (NOLS "“ Alaska) 2002 -Bachelor of Arts: Economics "“ The University of Delaware 2003 -Certificate in Financial Planning "“ The University of Delaware 2007 -Executive Masters in Business Administration "“ The University of Delaware 2010 (expected)