Yahoo Finance

Well, leaving a job, even if it's an exciting new opportunity that's presented, can deliver a blow to your future retirement stash if you're not careful. Here to explain, we've got Yahoo Finance Senior Columnist Carrie Hannon. Hey Carrie.

Hey, Brad. Great to be here. Yeah, this is a big issue for many people because, you know, you might, you know, have been laid off from job or you're switching jobs, and it's so easy to forget about your retirement accounts, sort of, in the excitement or the dismay over it, whatever it might be. But we lose track of this this bunch of this this whole pile of money we've set aside at a former employer, and it's really important to to keep your eye on that and not and not lose track of it. And also, if you can, if you're between jobs, keep saving in any way you possibly can become in a tax deferred account of some sort, because that will really make a difference.

You say there are four things that you should pay attention to in terms of your retirement accounts if you're leaving your job or are laid off. Then the first is paying attention to vesting schedules. What do people need to know about that?

Yeah, Brad, that's a good one because vesting is something we do tend to forget about pretty pretty easily. But that it refers to what your employee your employer matches in the employer contribution to your retirement plan, which if you it what can happen is the vesting period is technically, most companies are between three years and five years. Some automatically, as soon as you start. But if you're most uh people change jobs, EBRI, employee benefit Research Institute, found recently in a study that people change jobs about every five years. That's bumping right up on that vesting. And if you leave a firm before you're vested, you leave that money on the table, and that is something you absolutely do not want to do. So, with people changing jobs eight or nine times throughout a career, um this is money that that you really need to pay attention to. You might be able to to sort of push back your start date, if you're near to that vesting uh period ending, if possible, or if you've take if you've been offered a package, maybe there's a way to negotiate uh in order to not lose that money from your uh former employer.

Now, Carrie, the second thing that you say is, "Don't forget about your retirement accounts." All right. I I've been trying hard not to forget about my retirement accounts. But for those out there who have, how can they kind of reconcile?

Yeah. So, basically, when you switch jobs, you switch to new employer, you have a couple of options. Um and the first one is you can leave it right there with your former employer plan. And sometimes that's a great idea because if you're happy with those investments, um you're getting great fees because you're paying institutional uh fees on those accounts. And you and I have talked about how fees can really uh erode your retirement savings over time. So, that is one potential avenue. You don't want to forget that it's there, of course. But again, it's leaving in a former plan is not necessarily a bad idea. You can't add more to it, and you're restricted to those investments they have in that plan. The second thing you can do is roll it over to an individual retirement account. And so, that is your own savings. You can make that decision where you want to divvy up that that money into different buckets. You're going to pay higher fees there because it's retail. It's like wholesale versus retail. But that might be give you the control and the opportunity to invest in things that you really want to. And you may also have an opportunity to move it to your new plan. Most people do the one or the the first or the second options there.

And the third thing here, Carrie, pay attention to your new employer's plan features. What are some of those features that we can commonly look out for?

Yeah, gosh, I'm glad you brought that up, Brad, because here's the thing. Uh starting this year, uh most employer plans, 401k plans, need to automatically enroll you in the 401k plan and at a default rate of savings that they pull from your salary. So, that can be anywhere from 3% uh to 10%, but they usually start at 3%. So, here's the deal. Say you've been in your former plan, your former employer, you were saving, you know, 10% of your salary. Um and now you're in 3%. And if you don't realize that they've automatically enrolled you at that deferral rate with a 1% automatic adjustment each year up to say that 10%, um then you're going to be not saving at the at the rate you were in your former employer. And what you have to do there, um and when they enroll you in that, you have the the right to opt out or change that rate, that deferral rate. So, this is your time to say, "Hey, what was I saving before?" and and make sure that you're saving that same amount in your new plan.

And the last thing here, Carrie, is to avoid early withdrawals, if possible here. What do people need to know?

Yeah. Yeah, this is a tough one if you're between jobs, if you've been laid off and and you really need that money to live on. It's pretty hard not to want to tap into these retirement accounts. But if possible, uh try to refrain from doing that because you're going to pay tax on the amount you withdraw at ordinary income tax and a 10% uh uh fee for doing so, if you're under 59 and a half. So, I encourage people to, yes, don't feel bad. If there's no shame if you have to do this. But if you do have to, do everything you can to, as soon as you do find new employment, to really buckle down on the savings, because this is uh, you know, you're saving for your life.

Carrie, thanks so much for breaking this all down for us.

Thanks, Brad.