- The Essential Military-to-Civilian Transition Resource

What To Do With Your Retirement Accounts When You Get A New Job
by Ashley Feinstein, Financial Writer

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Article Sponsored by: Noranda

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Soon, you’ll be receiving congratulations for your new civilian job! With the excitement of taking these next steps in your career, along with the work ahead to transition into the new role, your retirement accounts might be the last thing on your mind. If retirement is an important financial goal, you will want to understand your options so that you can make informed choices that will work best for you and your life goals.

If this is your first civilian job after transitioning from the military, you might have a Thrift Savings Plan (TSP). Many military members take advantage of the benefits of a TSP account because it’s a tax-advantaged way to save for retirement. When you transition from service, there are four options to consider:


1. You can roll the money over to your new employer’s plan. Many consider this option, as it’s convenient to have your retirement funds all in one place. It’s important to understand the investment choices and fees associated with your new employer’s plan. You can typically get this information from a human resources or benefits representative with your company. More and more, employers are offering the option of both a traditional and Roth 401(k). If you contribute to a traditional 401(k) your contributions are made pre-tax and grow tax-deferred, and distributions are taxed when you retire. If you contribute to a Roth 401(k), your contributions are taxed and grow tax-deferred, and you pay no tax on your distributions.


2. You can leave the funds in your TSP account. This is often a very attractive option if your new employer’s plan has limited options or expensive fees, or if your new employer doesn’t offer a retirement program.


3. You may want to roll your TSP funds into an Individual Retirement Account (IRA). This option is also very popular as IRAs often have more investment choices and lower fees than the typical employer-sponsored program.


4. Finally, you also have the option to cash in on your TSP. I highly recommend avoiding this option if at all possible. Not only do you miss out on years of growth and compound interest by cashing out, but you also will be responsible for paying taxes as well as penalty fees, which will eat away at a significant portion of your retirement savings.


If you are transitioning to a new company and already have an IRA or an employer-sponsored retirement account in place, you have an array of options:


1. You can roll over your IRA or 401(k) into your new employer’s plan. Rolling over your IRA into your new employer’s 401(k) is called a reverse rollover. This option is useful for a simplification of your retirement accounts - it’s easier to have everything in one place. There are many factors that should weigh into your decision to do a reverse rollover, and these will depend on the rules and fees of your new employer’s program. Some workplace plans may allow for early retirement, taking out a loan on your assets and the deferral of retirement because there are no forced distributions. If these benefits are a good fit for you, it might make sense to roll over your IRA into your new employer’s 401(k). Rolling over your account to your new employer’s plan typically will not have any fees associated with it.


2. You can leave the funds with your previous employer. This option may sound appealing because it involves the least amount of work. While nothing will change with your investments and you may even be able to continue rebalancing your investments, you are at risk if there is a plan change. If your previous employer moves their retirement program to another company, you will be dealing with a new set of investment options, fees and regulations.


3. You can roll over the funds to an IRA. This is a very popular option as a rollover to an IRA is also free of charge but typically has a wider array of investment opportunities and lower fees. While some prefer not to have two separate retirement accounts - in this case, the IRA and the company-sponsored 401(k) account - the low fees and investment flexibility may outweigh the inconvenience. 


4. You also have the option to cash in on your previous employer’s 401(k). I highly recommend avoiding this option if at all possible as it is tremendously costly. Not only will you be paying taxes on your entire retirement balance, but also there are many fees associated with cashing in. Not to mention, you are giving up the future growth in your retirement savings.


Regardless of which option you choose, you will want to start contributing to your retirement savings either through your company’s program or through an IRA. If your company offers a 401(k) matching program, make sure to maximize it! Often employers will match a certain percentage or amount of your contributions to encourage retirement saving. For example, if your company offers a 6 percent 401(k) match, it will contribute an additional 6 percent of your annual salary to your retirement savings if you do the same. If you earn $50,000 and your company offers a 6 percent 401(k) match per year, it will match your retirement contributions up to $3,000. Some 401(k) match programs don’t vest all in the same year. If your 401(k) match has a vesting period of three years, for example, you will only earn one third of your match each year. This incentivizes employees to stay with the company.


Some people choose to contribute to both a 401(k) and an IRA in order to maximize their tax advantaged retirement savings. Some companies offer defined-benefit or pension plans. Make sure to understand your eligibility and the vesting options before you start to contribute. If you leave before your options fully vest, you will most likely not receive full payments in retirement.


While the transition to a civilian job is very exciting and often stressful, don’t forget to make time to set your retirement accounts up for success. Retirement is often one of our most important financial goals but can take a backseat to more pressing and urgent matters. Understand your options so you can make a decision that will work best with your priorities, needs and goals.


Ashley Feinstein is a certified money coach and founder of Knowing Your Worth, where she empowers her clients to redefine success on their own terms by knowing their value and fearlessly going for it. Find out more, check out her blog at and connect with her on Facebook and Twitter at The Fiscal Femme.

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