Career Changer Rollovers
One effect of job hopping or changing careers is that you could have multiple retirement accounts floating around out there. Teachers who have had the same 403(b) or pension their entire career may not have dealt with this before.
This could get unwieldy. Fast forward thirty years and you could have ten different accounts, some with only a couple grand in each. Some of the companies you previously worked for might have closed, or you might have forgotten some passwords. Yikes!
This is why rolling over retirement accounts when you leave an organization is SO IMPORTANT. Here’s a quick and easy guide to taking charge of your retirement funds.
First, find all of your accounts (403b, 457b, 401k, pensions, etc.). Figure out whether they have Roth or traditional status, because any one of those accounts can be Roth (after-tax) or traditional (pre-tax). This is important because Roth accounts can only be rolled over to other Roth accounts, but traditional can be rolled to either. If you choose to roll a traditional retirement fund to a Roth, however, you will have to pay taxes when you make that transaction. (On a side note I prefer Roth because you pay taxes now but not when you take the distribution in retirement. You’re welcome, future me.)
Next, open an IRA. This is easy to do with one of the big firms like Vanguard, Fidelity, Charles Schwab, SoFi, or Betterment. Choose Roth or traditional, or possibly both, depending on what accounts you are rolling over.
Roll over the money from all of the employer sponsored accounts you have from previous jobs into the IRA you opened in step 2. Reach out to your retirement plan providers and request to directly roll the funds over to your IRA. Do not take the distributions as cash because there could be a penalty. Most retirement plan providers have a clear form or process for rollovers. In the future, repeat this step every time you leave a job.
Finally, when your money has cleared into your new account, choose your investments. Make sure they are not sitting there as cash, but are diversified across different index/mutual funds. Do your research but broad funds that follow the S&P 500 like VTSAX or target date funds are always a good bet. I split mine 25% each across 4 different funds. Look at the performance history when making your selection.
**A bonus last step would be to opt into future contributions as well, if you are taking advantage of your employer match and still have money to save for retirement. For example, if you have a 6% match at work, but want to save 15% for retirement, you can contribute up to $7,000/year into your IRA. Make sure these contributions are also investing into index/mutual funds.
Moving forward, you are now totally in charge of your money. You know exactly where your money sits, and are watching the growth as your investments earn compound interest. What a great feeling! Just make sure to repeat steps 3 and 4 every time you leave a job.
