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December 15, 2021
We all know that a job change can be both exciting and stressful at the same time. There’s a lot to look forward to – new people, new office mug. But there’s also a lot of paperwork and decisions to go through at the beginning. One important thing you’ll want to figure out right away is your workplace retirement plan. (The other important thing is where they keep the snacks.)
In case you need a quick refresher, here are some basic details to check on. If your new company offers a 401(k), ask when you can start participating or contributing to the plan. (Some employers have a waiting period.) And if you’re thinking about rolling over your 401(k) from the last job, find out if that’s an option, as not all plans accept rollovers.
Now if you’ve only ever used a 401(k) to save for retirement, it may be a good time to consider opening an Individual Retirement Account (IRA). That’s right – you could have both!
You may already be familiar with the potential benefits of an IRA. And maybe you’ve been meaning to open an account but never got around to it. Hey, we get it. Life gets busy. The idea of keeping track of another financial account is probably not at the top of your to-do list.
But here’s the thing: An IRA could give you a consistent, flexible way to save for retirement. Because unlike a 401(k) plan, it’s not tied to your workplace. This means that the account could move with you from job to job.
Changing jobs shouldn’t mean you have to press pause on saving for retirement. But if you rely only on a 401(k) plan, you could run into some delays once you land at your new workplace.
As we mentioned earlier, even if your new company offers a 401(k) – and not all companies do – you might have to wait a while before you can start contributing. Depending on your company’s plan, the wait could be as long as a year! And a year is a long time to have your retirement dollars sitting on the sidelines.
This is where opening an IRA could be helpful. An IRA allows you to keep stashing money away for retirement while you’re waiting to participate in your new company’s 401(k). In other words, it can help keep you on track towards your wealth-building goals.
Yes, you can sign up for an account through an IRA provider like a bank or brokerage firm. Once you set up the account, you can begin contributing almost immediately. And you can keep going until you hit the annual contribution limit (which is determined by the IRS each year). For 2021 and 2022, you can sock away up to $6,000 (or $7,000 if you’re age 50 or older) between all of your traditional and Roth IRAs.
Not sure whether to open up a traditional or Roth IRA? (Or perhaps, both?) Check out our article on the topic here, which walks you through some of the key differences between the two.
And if you really want to get into the details, grab that new office mug of yours and curl up to IRS Publication 590-A, which has information on eligibility rules, contribution limits and deadlines.
Do you have a number of 401(k) plans left over from past jobs? Then your retirement money is probably scattered across several financial firms. Keeping track of multiple 401(k) accounts can feel like you’re constantly having to pick up old socks. And who likes clutter? Especially when it comes to managing your money.
An IRA could be handy in helping to consolidate those 401(k) dollars all in one place. Rolling over your old 401(k) plans directly to an IRA could help you keep better track of your money.
It could also make it easier to see the big picture, like whether you’re invested in an appropriate mix of assets. A rollover may sound like a complicated process, but it doesn’t have to be. Most major banks and brokerage firms can guide you through the steps and any applicable rules.
Good to know: While IRAs have limits on how much you can contribute each year. There are generally no limits on how much you can move into an IRA by rolling over dollars from a 401(k). The IRS does not apply IRA contribution limits to rollovers.
Not sure whether a rollover makes sense for you? Check in with your financial advisor who can help answer any questions you may have.
Learn more: 401(k) Rollovers: What You Need to Know
For many people, changing jobs is inevitable. But a job change shouldn’t have to disrupt your retirement savings. To help keep you moving towards your money goals, consider opening an IRA in addition to your 401(k).
Remember, the annual 401(k) contribution limit is $19,500 for 2021 and $20,500 for 2022 (those who are age 50 or over can make additional catch-up contributions of up to $6,500, bringing the total to $26,000 for 2021 and $27,000 for 2022). For traditional and Roth IRAs, it's $6,000 for 2021 and 2022 (or $7,000 if you're age 50 or older).
Having both types of account can give you the opportunity to really maximize your retirement savings each year.
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