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How to Reinvent Your Career Without Wrecking Your Retirement

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If you are established in your career, you might have long ago chosen a retirement strategy (or were automatically enrolled in a company retirement plan). You may even feel like your retirement savings are keeping you from branching out to a new job or even career. It may seem daunting to leave all your savings behind and start down a new path, but if it will make you happier and your new career will still allow you to sock money away for the future (or maybe save even more), it might not be smart to hold yourself back.

It’s not a decision that can be made lightly, but making a successful career change can be very rewarding if you assess what you want, do your research and plan for it. Check out some tips below about what to do with your employer-sponsored plan so you do not risk your retirement when you reinvent yourself.

Leave Your Money Alone

As long as you have more than $5,000 in your plan, your employer must allow you to leave your 401(k) as is. This can be a good short-term solution, while you figure out your next move. But since you cannot continue investing in an employer-sponsored plan after leaving the job, you may want to eventually combine it with another account. If you don’t do anything with the account, you might forget it exists or risk not knowing if there are significant changes to the plan.

Roll It Over

Depending on what your 401(k) is worth, you can move the assets from this fund into a new 401(k) or an individual retirement account. You can have your old plan’s custodian transfer your 401(k) to a new employer’s 401(k) or a similar tax-deferred retirement plan automatically, without getting involved directly.

If you have the amount transferred in a direct rollover, no taxes will be withheld whereas if you are paid out the amount and switch it manually, a portion will go to federal taxes off the bat and potentially more if you do not complete the process within 60 days. This is almost always the most recommended action to take with a 401(k) when you are switching jobs.

Cash Out

Though many advise against this option, you can use the money you have saved to help you adjust between jobs. It’s important to know, though, that this money is earmarked for retirement. Taking money out of your 401(k) before you turn 59½ years old, will result in tax liability and likely penalty fees (there are some exceptions). Ideally, you will have an emergency fund to turn to between jobs or for any needs that come up.

Missing Months

If you will have time off between jobs or if you are taking a pay cut to change careers, it’s good to know how this will impact your retirement plan. Keep in mind that not every plan is as generous in matching employee contributions — maybe you will make less money at your new job but a larger company 401(k) match or you could be making more money but have to set up your own retirement account. It’s important to take into account these factors before deciding what to do.

In the end, this is your future you are protecting. It is possible to make positive changes in your life without risking retirement, but it may require some thought and effort on your end. If you really want to invest in your happiness, make sure you aren’t leaving your future self in the lurch. Assess what you should do with your current employer-sponsored retirement plan, carve out a realistic budget and savings method for your new path — and continue to save early and often.

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