THE BLOG
07/29/2014 11:47 am ET Updated Sep 28, 2014

Sudden Wealth From a Job Change?

My Mom worked for the University of Kentucky for 41 years. Yep, 41 years!

Who does that anymore? Hardly anyone.

Most working Americans will change jobs 11 times during their working years, according to Fidelity Investments. That works out to a job switch about every 4 years.

Job transitions are an example of Life Event. Life Events are milestones that happen that cause your life to change. They also create sudden wealth. Wealth that is created from your retirement plan among other things.

Every Life Event, including a job change, comes with questions. You'll have some big decisions to make. So here a few things you'll want to consider:

What should I do with my old employer's retirement plan money?

What benefits should you choose?

How will your job change impact your financial situation?

Make a smart decision about your retirement savings.

When you change jobs your first thought probably will not be about your retirement savings. However, it could be a very large sum of money, so be informed. You'll get to keep the vested portion of your 401(k) from your employer. You have a few choices for your rollover.

Roll it.

This option allows you to move your money to an IRA. There will be no tax consequences and your investment choices are virtually limitless. It also allows you to keep things simple and consolidated into one account. It also keeps your money growing tax-deferred.

Leave it.

Leaving it in your old employer's plan is the easiest option. However, it limits your choices and you have to continue to contact your old employer. It could make your finances more complicated because you'll need to manage multiple accounts. Leaving it will keep your money to continue its tax-deferred growth.

Transfer it.

You could transfer your retirement savings to your new employer. Again, you investment choices are limited. You could run into taxes and penalties if the money is not transferred in a timely manner.

Cash it.

This is probably the least desirable option of all. It will cost you taxes and penalties. The IRS assesses a 10% penalty if you are under 59 1/2. Plus, the distributions is added to your taxable income for the year. Not to mention, it could hurt your retirement goal.

Benefits and financial planning

Along with your retirement rollover, you'll have to make important decisions about your new benefits. Most employees really don't understand the benefits they have with their employers. A job change is a terrific time to evaluate exactly what you need. You'll want to coordinate these benefits with a working spouse's benefits too.

Do you understand your life and disability insurance options?

Have you considered how a job change effects existing stock options?

What type of life insurance do you have and what does it cover?

Just after a job change is a great time to do some financial planning. If your job change comes with a nice increase in salary, then that may help you with some of your other financial goals.

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