How Job-Hoppers Can Keep Up With Their Retirement Savings

It's very common these days for young people to move from job to job. The days of sticking with a company for decades and earning a big pension are over.

Thankfully, 401(k) plans and individual retirement accounts allow workers to switch jobs without losing their retirement savings, but it's still possible for all that job-hopping to disrupt your ability to save. If you do switch jobs regularly, there are some sensible things you can do to ensure that your retirement plan stays on track.

Open a traditional or Roth IRA

If you are between jobs with no access to an employer-sponsored retirement plan, there are still things you can do to save. If you have any earned income at all, you can contribute to an individual retirement account, which allows you to invest with some tax advantages.

With a traditional IRA, any money you contribute is deducted from your taxable income. With a Roth IRA, your money is taxed upfront, but you will avoid paying any taxes on investment gains when you withdraw the money when you retire. IRAs can be very powerful tools for retirement savings for self-employed people, part-time workers, or those with irregular incomes. You can maintain and contribute to these accounts even after you get a 401(k) plan from a new employer. (See also: 401(k) or IRA? You Need Both)

Roll over your 401(k)

If you had a 401(k) from one employer and switch jobs, you can take the funds from the old account and add it to the new one. This is called a 401(k) rollover. There usually is no penalty if you don't merge the accounts right away, but over time the old 401(k) provider may start to bug you about it. You should consider a rollover if the retirement fund from your new employer offers better investment options, lower fees, or both. If you call the brokerage firm that is managing your old 401(k), they will usually be happy to walk you through the steps to carry out a rollover. (See also: A Simple Guide to Rolling Over All of Your 401Ks and IRAs)

Open a rollover IRA

If you no longer have access to a 401(k) or don't like the investment options in your new retirement plan, you can place your investments in a new individual retirement account. This is called a rollover IRA, and it can be better than a 401(k) because you usually will have many more investment options, from mutual funds and ETFs to individual stocks and bonds.

Look into a 401(k)-to-Roth IRA conversion

When you have a 401(k), you will eventually be obligated to pay tax on any gains when you begin withdrawing money in retirement. That's why some investors look into turning their 401(k) and traditional IRA accounts into a Roth IRA, which allows money to grow tax-free.

The big catch to making this conversion is that you must pay tax on any gains you've had up until now. That could be a big chunk of change that you may not be in a position to handle right now, but a smart move if you think your tax bracket will be higher in the future. An accountant or financial adviser can help you determine whether converting an old 401(k) to a Roth IRA makes sense for you.

Play catch up

Let's say you left a job and were not able to contribute to retirement accounts for three months. But, you land a new job with a higher salary than before. If this happens, consider bumping up your retirement contributions to make up for that lost time. Any time you get new or unexpected income, consider using that to backfill the retirement accounts you may have been neglecting.

Once you make those extra payments, you may find that you have the ability to contribute the higher amount on an ongoing basis. And that's great, because the more you are able to save, the more you'll have in the long run. (See also: 6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future)

Pay close attention to the employer match

Employers can vary greatly in how much they contribute to workers' 401(k) accounts. Some will provide direct contributions while also matching what the employee put in. Some offer a full match on contributions, while others match just a portion. And some don't contribute at all. It's important to remember this when switching companies, especially if you are moving to a company with a retirement plan that's less generous.

Ideally, you will want to make sure that the total amount of money going into your 401(k) remains the same or goes up over time. If your new employer is contributing less on a percentage basis, consider bumping up your own contributions to make up the difference. (See also: 7 Things You Should Know About Your 401(k) Match)

Don't forget about the vesting period

If you work at a company that contributes to your 401(k) plan, it's possible that you may not be able to keep those contributions unless you stay at the company a certain number of years. For example, the company may reclaim any contributions if you leave before two years. This is called the vesting period.

To get the full advantage of a company retirement plan, it makes sense to stay through the full vesting period. Some companies offer a tiered vesting schedule, in which employees keep an increasing portion of company contributions each year until they are fully vested.

Be sure to read the documentation on your 401(k) plan to understand the vesting policies. If you leave the company before you are fully vested, you may be leaving large sums of money on the table.

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