3 Common Retirement Mistakes People Make When Changing Employment
When you leave a company’s employment, you have a few options for dealing with your old retirement account. You can leave the money in the old account, take a distribution without rolling it into a new retirement fund, or you can roll your old account into a new account at your new place of employment.
While these options are certainly the most common, none is the wisest investment decision for your retirement fund. Self-directed investing is a vehicle very few people even know exists. And the ones who do rarely have direct access to their retirement account because it’s tied up with an employer’s 401(k). Transitioning from one job to another is one of the few windows of opportunity for most workers to access their retirement money directly. It’s during this window they can choose to initiate a self-directed investment.
Three of the Worst (and Most Avoidable) Retirement Mistakes For People Transitioning Employment
- Leaving Money in Your Old Account
Of the three options, this one is the least advantageous. Whether intentionally or unintentionally, many employers don’t educate employees as to what options they have regarding their retirement account when they separate employment. Because of this, you may not realize that when you leave the company you can take your retirement with you.
If you’ve read our eBook on “How to Think Like a Wall Street Investor,” you’ll recall that the value of compound interest is exponential, so using the retirement fund you’ve built, while continuing to grow by a new investment, will enable you to maximize your return.
- Taking a Distribution Instead of Rolling it Over
If you’re leaving a job and debating whether to use your retirement money to buy some new clothes, pay off some old debt, or just pad your savings – don’t. Taking a distribution means paying taxes on that money as income in addition to likely paying a hefty penalty. You put that money away for retirement in the first place. Why lose a bunch of it and have to start over if you don’t have to?
Rather than taking a distribution, consider rolling those old funds into your new account or into an IRA which you can then self-direct (see “An Alternative Option” below). When you do this, you don’t have to pay the taxes or the early distribution fee. As a bonus, the money continues to grow for you throughout the remainder of your working years.
- Rolling Your Old Account Into Your New Employer’s Account
Many employer-sponsored 401(k) plans are largely self-directed. Depending on how the 401(k) account is structured, you may not receive any investment guidance. Additionally, many 401(k) accounts provide limited investment options. For example, your new 401(k) may only have a select group of mutual or exchange traded funds from which to choose. The one advantage to keeping your money with an employer is that the administrative costs have the potential to be lower due to the employer’s ability to leverage the sum of all participating employees.
An Alternative Option for Retirement Investing
Many people, especially younger and middle-aged workers, have found a different way to diversify their retirement, while at the same time taking direct control of their investments. Some are choosing to buy investment properties, while others are taking advantage of promissory note lending, purchasing precious metals, or funding an LLC.
Smart people know the value of diversifying their investment portfolio, but most simply vary which groups of stocks and mutual funds they purchase within a traditional 401(k). More and more regular folks are waking up to the fact that true diversification means looking at alternative, non-traditional investment opportunities.
It’s those savvy investors iPlanGroup was designed to help. Founded by investors for investors, iPlanGroup manages the investments YOU decide to make.
Download our “How to Think Like a Wall Street Investor,” eBook below and start your self-directed investment journey today. Then let iPlanGroup help you become the hero of your own story!