Did You Leave a Retirement Plan at a Former Job...

Did you leave behind a 401(k), 403(b), or 457 governmental deferred compensation plan at a former job--or are you about to? Before making any moves, contact your plan administrator and, if necessary, a financial or tax adviser for complete information about the rules and tax consequences.

Option 1: Leave your savings with your former employer.

Before settling on this alternative, review your plan's investments, fees, services, withdrawal restrictions, and distribution rules. Then compare the plan with an IRA (individual retirement account) and, if you have one, your new employer's retirement plan.

Option 2: Roll over your plan to a traditional IRA.

Once you've left your employer, you have the option of directly rolling over part or all of the eligible distribution from your 401(k), 403(b), or 457 governmental plan to a traditional IRA. Rolling over your plan allows your savings to continue accumulating tax-deferred.

A traditional IRA may offer you a broader selection of investment options than your current or new employer-sponsored retirement plan. It also offers you and your beneficiaries more flexible and tax-favored distribution options than your employer retirement plan.

Rolling over your employer plan savings to a traditional IRA also gives you the option, if you're eligible and after paying any income taxes due, to convert your savings to a tax-free Roth IRA. (You cannot roll over savings from your former employer's plan directly to a Roth IRA. Talk to a Harvard University Credit Union IRA specialist about making the conversion.)

Option 3: Move your savings to your new employer plan.

If you have a 401(k), 403(b), or 457 governmental plan with a former employer, you can roll over eligible distributions tax-free to any such plan that accepts rollovers.

When considering the alternatives, compare your new employer retirement plan with your current plan and an IRA. Evaluate the investments, services, withdrawal restrictions, loan provisions, distribution options, and fees.

Option 4: Cash out and pay taxes.

As a last resort after you've left your job, you can withdraw part or all the vested portion of your employer-sponsored retirement plan. However, you'll lose a significant chunk of your savings to federal income taxes, possibly state income taxes, and possibly to the 10% early withdrawal tax penalty.

In addition, your employer must withhold 20% up front as prepayment for the federal income taxes you'll owe at tax filing time. You'll also lose out on future years of earnings and tax-deferred growth.

Want more information? Take a look at the Individual Retirement Accounts offered by HUECU and use our quick and easy Traditional vs. Roth IRA Financial Calculator to see what's best for you. We also offer a variety of IRA Term Share Certificates as well as an IRA Money Market Savings Account. More questions? You can stop by any of our branch locations, call us at (617) 495-4460 or email us for more information.


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