According to a January 2018 report from the Bureau of Labor Statistics, the average person changes jobs ten to fifteen times (with an average of 12 job changes) during his or her career. Many workers spend five years or less in every job. If you are saving in an employer-sponsored retirement plan with each employer, that means you have a decision to make each time you switch jobs with your retirement plan dollars.

What are your options? First, do nothing and leave your savings in your former employers’ plan if it is allowed. This makes sense if your former employer plan is great and the costs are low. Plus, you don’t have to rush into any decisions. Second, you can roll these dollars into your new plan at your new employer. This also makes sense if your new plan is absolutely killer and the costs are rock-bottom. Your new plan must allow you to do this, and most do.  This option helps limit the number of accounts that you need to pay attention to. Third, you can cash it in, pay taxes and penalties, and use the money. This is usually the worst move and should only be used in desperate circumstances. Unfortunately, this option is used way too often. The Savings Preservation Working Group says that at least 33% and as many as 47% of plan participants withdraw part or all their retirement savings when switching jobs*. And the main reason for doing this is to avoid the hassle of taking other options (which is not that much of a hassle). Try to ignore this third option.

Most people need to consider a fourth option which is to establish a quality IRA Rollover account and move these dollars there. This way you keep these dollars actively invested for your retirement, avoid any taxes or penalties, you establish an account that will exist for many years (probably decades), and you will see this account grow over time with each transfer and the investment growth. This approach will likely simplify your investing over time as you will only have to manage your current employer plan and this rollover account versus a bunch of small plans spread around. Plus, having a “go-to” rollover account early in your career will help you avoid the temptation of “cashing out” when you switch jobs. For most people that do follow a pattern of job switching, this account will eventually become their largest account.

What do you look for in a “quality” rollover account? There are many good choices out there. You want low costs, access to a wide variety of investments (as in  just about anything that is legally suitable for an IRA such as mutual funds, ETFs, and individual stocks and bonds), a good website and app, and good customer service. I have used Charles Schwab & Company for many years now and I’m very happy there**. Other good options include Fidelity, Vanguard, E-Trade, TD Ameritrade, and Interactive Brokers to name a few. Once you establish and fund an account, you then select and control how your money is invested.

Enjoy the Journey!

*According to a report from the Savings Preservation Working Group, “Cashing Out: The Systemic Impact of Withdrawing Savings Before Retirement”, October 29, 2019. 

**I have no financial incentive to recommend Schwab, I’m just sharing my experience.