Whether we left the company or the company decided we should leave, most of us have been affected by a job change. It can be a dreadful time or it can be a welcome time of a new opportunity. With all the activities areound the change, you may unintentionally leave something behind – your personal retirement account.
Whether a 401(k), a 457, 403(b) – whatever the magical IRS number, people sometimes leave their retirement account behind at with their former employer. Many just feel comfortable with the investments that they have made. Others leave it because they are not sure how to make the move. Still others did not even know they could move it.
Is this you? Did you leave your retirement account behind? You do not need to. You have options and some of those options are better than others. Your options:
- Leave it where it is – Not bad, but most likely not the best option. With limited investment options, your money may not grow like it needs to.
- Take it with you to your new employer – Not necessarily bad, but most people take this option to all ow them a stash to borrow from in the future. Borrowing is not an option you should be considering.
- Cash it out – NO, absolutely no. The worst of all the options.
- Roll your account over to a qualified account (IRA Rollover) – As a financial coach, this is the best option. In the qualified account at a brokerage firm, you can invest your money in the best investment options available.
It is your money. You need to manage it well. Make sure when you leave employers moving your retirement money is on your checklist!
But what if you are cashing out to pay off debt that is acquiring large amounts of interest (more than what the average rate of return is on your investment)? It just seems it could be mathematically logical?
The answer is still no. You have worked hard to build what you have in that retirement account. In most cases, your employer has also given you “free” money to add to the account and allow it to grow to something more respectable. What happens is we lose, in your example, several things including the time value of the investment. The money invested has grown over time and that can NEVER be replaced.
To pay off debt and get out of that cycle completely – you have to go through some pain. Pain of getting on debt payment plan it tough, but it teaches. Using money we have saved fore retirement helps us miss the pain and also potentially damages our financial future.