Changing jobs? Don’t forget about your 401k
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Changing jobs can be an exciting yet stressful time in your life. Even though managing your finances may not be on your priority list, it is important to devote time to planning. And when it comes to your company-sponsored retirement plan, there are a few things to consider.
New Company Retirement Plan
One of the most important things to do when starting a new job is to check if your new company offers a sponsored retirement plan, such as a 401(k) or 403(b). These are great ways to save for retirement.
Assuming the company does offer such a plan, you will first need to decide how much to contribute. Although this amount will vary depending on your financial situation, the limit to contribute to most of these is $23,500 for 2025 if you are under 50 years old. If you are over age 50, you can contribute an extra $7,500.
Often your employer will also contribute to your retirement account. Usually, this is formatted to match your percentage contribution up to a certain threshold.
For example, they might match your contribution up to 6% of your income. If you contribute 4%, then the company will contribute 4%. If you contribute 10%, the company will contribute 6% (because of the pre-determined cap). Trying to match at least what the company offers is a great starting point because it’s essentially free money!
The next step with your new retirement plan is choosing the investment options. Most of these plans will offer a pre-determined list of investment funds that you can choose from. If no selection is made, it usually defaults to a target date fund.
The nice part about a company-sponsored retirement plan is that the contributions are automatically invested once they are deposited into the account.
The new employer will usually require a waiting period to participate in the company plan – typically six months. So, you should have time to digest some of this information before taking action.
Former Company Retirement Plans
You likely had a company-sponsored retirement plan with your previous employer that you’ll need to address. But don’t worry, you have options!
- Keep it at the current custodian. You usually don’t have to do anything with the account if you don’t want to. Just make sure you are familiar with the fees that the current custodian is charging and how the account is invested.
- Transfer it to your new company-sponsored retirement plan. This is assuming the new plan will allow incoming rollovers. This option is great for consolidation, but you’ll want to ensure the new plan has solid investment options.
- Roll it over to an IRA. This option gives you much more control over your investments. However, you may not want to choose this option if you are in a certain income bracket because it may hinder your ability to make backdoor Roth IRA contributions.
Each of these decisions has pros and cons, so weighing those before you decide is important.
Summary
This is not an exhaustive list of what you must do or consider regarding your retirement plan. Each company’s plan will differ from others. It’s important to talk with a financial advisor for advice regarding the best option for you, how much to contribute, and what investments you should use.
Austin Stagman, CIMA, is a Portfolio Manager with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.bedelfinancial.com or email David at astagman@bedelfinancial.com.