1 00:00:00,000 --> 00:00:03,330 Ralph: Have you recently changed jobs or planning a switch companies soon? 2 00:00:04,109 --> 00:00:08,219 Do you have money built up in a 401k or other retirement plan with your current employer? 3 00:00:08,490 --> 00:00:11,219 And you're not quite sure what you want to do with it when you leave? 4 00:00:11,589 --> 00:00:17,670 Well stay tuned, because today I will be sharing my best tips for handling retirement accounts during a job transition. 5 00:00:18,030 --> 00:00:24,270 I'm also going to share with you a nightmare scenario that I witnessed on the part of a client, which costs them thousands. 6 00:00:24,600 --> 00:00:27,690 In tax, you don't want to miss that story on today's show. 7 00:00:29,470 --> 00:00:48,570 Intro: Welcome to the Ask Ralph Podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines, and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. 8 00:00:48,870 --> 00:00:55,660 Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial. 9 00:00:55,900 --> 00:00:58,449 Now here's your host, Ralph Estep, Jr. 10 00:00:59,690 --> 00:01:01,010 Ralph: Welcome to our Saturday show. 11 00:01:01,010 --> 00:01:02,420 I'm so glad you chose to join us. 12 00:01:02,720 --> 00:01:05,930 I want to thank you for listening and more importantly, supporting the program. 13 00:01:06,260 --> 00:01:09,860 I'm coming to you from the Estep Farm at the Saggio Accounting studio . today. 14 00:01:10,160 --> 00:01:11,870 Let me put on my podcaster hat. 15 00:01:12,110 --> 00:01:19,670 Put down those overalls and slide that adding machine to the side and let's get into some financial wisdom from a Christian perspective. 16 00:01:20,020 --> 00:01:26,990 Today we're talking about what to do with your retirement accounts when you change jobs, Listen folks, this is sometimes an inevitability. 17 00:01:27,680 --> 00:01:33,380 It seems these days we do change jobs quite a bit, well don't forget to subscribe to the show and join our email list. 18 00:01:33,680 --> 00:01:39,080 You do that at askralphpodcast.com . So you don't miss tomorrow show for our spiritual Sunday. 19 00:01:39,080 --> 00:01:42,260 We're going to be discussing weathering the storms of life. 20 00:01:42,680 --> 00:01:48,800 This will be a truly inspirational discussion about the realities of life and how to thrive during the storms of life. 21 00:01:49,160 --> 00:01:57,470 It seems like we're always going through storms and tomorrow I'm going to give you some concrete ways of how to get through those unscathed or at least partially unscathed. 22 00:01:57,830 --> 00:02:04,430 We also launched an insider's group on Facebook and I encourage each of our listeners to join the group to continue the conversation from the show. 23 00:02:04,700 --> 00:02:09,680 It's a great place to share ideas for the show, discuss your triumphs and your challenges. 24 00:02:09,950 --> 00:02:12,530 I'll have a link to the Facebook group in the show notes. 25 00:02:13,130 --> 00:02:14,990 Let's start with today's Bible verse. 26 00:02:15,200 --> 00:02:25,760 The Bible reminds us in Proverbs chapter 21, verse 20 precious treasure and oil are in a wise man's dwelling, but a foolish man devours it. 27 00:02:26,090 --> 00:02:29,630 When we change jobs, it can be tempting to cash out of our retirement savings. 28 00:02:30,020 --> 00:02:32,060 Instead of protecting them for the future. 29 00:02:32,300 --> 00:02:34,370 Trust me, I see this every day. 30 00:02:34,760 --> 00:02:38,210 But as wide stewards, we should handle these accounts responsibly. 31 00:02:38,510 --> 00:02:40,370 Even during transitions. 32 00:02:40,850 --> 00:02:47,210 Whether you recently switched companies are considering a new opportunity or just want to better understand your options. 33 00:02:47,480 --> 00:02:50,180 This discussion will provide some practical advice. 34 00:02:50,510 --> 00:02:57,170 I'll share the mistakes to avoid, and the smartest moves to make and real life examples from my own career changes. 35 00:02:57,470 --> 00:02:58,790 My goal was pretty simple. 36 00:02:59,060 --> 00:03:05,300 It's to equip you with knowledge so you can make informed decisions and continue building wealth for your future retirement. 37 00:03:05,570 --> 00:03:10,580 As I always say, information and knowledge is power first, 38 00:03:10,580 --> 00:03:14,300 let's do a quick overview of the most common employer sponsored retirement accounts. 39 00:03:14,630 --> 00:03:18,260 Those are your 401ks, your 403B's and pensions. 40 00:03:18,510 --> 00:03:25,170 The details can get complicated, but essentially 401ks are offered by private for-profit companies. 41 00:03:25,690 --> 00:03:31,680 403B's are offered through nonprofit organizations and pensions guarantee set payments in retirement. 42 00:03:32,040 --> 00:03:39,180 The money you contribute to these accounts is invested and generally grows tax deferred, meaning you don't pay taxes on it until retirement. 43 00:03:39,570 --> 00:03:44,160 Many employers also match a percentage of your contributions up to a certain amount. 44 00:03:44,370 --> 00:03:52,380 We generally call these accounts pre-tax money investments since they help to reduce your taxable income at the time of the contributions. 45 00:03:52,770 --> 00:03:59,430 But then it leaves the question, Ralph, what happens when I leave my job, you really have four main options. 46 00:03:59,610 --> 00:04:00,930 We're going to handle those right now. 47 00:04:01,320 --> 00:04:04,320 Your first option is cash out and take a taxable distribution. 48 00:04:04,620 --> 00:04:07,860 The second option is leave the money in your former employers plan. 49 00:04:08,220 --> 00:04:14,460 Third option is rollover the account to your new employer's plan or fourthly you can roll over the bounce into an IRA. 50 00:04:14,730 --> 00:04:18,880 So let's explore the pros and cons of each one of these choices there really are four to. 51 00:04:18,899 --> 00:04:19,380 Choose from. 52 00:04:19,920 --> 00:04:21,170 Let's start with the cash out. 53 00:04:21,660 --> 00:04:25,110 This is often the most tempting, but usually not the best. 54 00:04:25,110 --> 00:04:27,060 I would even say it's probably the worst option. 55 00:04:27,600 --> 00:04:35,010 If you withdraw the money and don't roll it over, you're going to face penalties and immediately income tax on the entire distribution. 56 00:04:35,520 --> 00:04:40,620 For people younger than 59 and a half, you'll also pay a 10% early withdrawal penalty. 57 00:04:40,860 --> 00:04:49,140 So you're going to pay that 10% on whatever the full amount is that you take out of that plan By cashing out you shrink your retirement savings significantly. 58 00:04:49,470 --> 00:04:51,750 That's what I call the 45% haircut. 59 00:04:52,020 --> 00:04:56,790 Cause you will effectively we lose 45% of your retirement savings in tax and folks. 60 00:04:56,820 --> 00:04:58,860 It takes a long time to recover from that. 61 00:04:59,220 --> 00:05:08,040 However, there are some rare situations where this move makes sense, like using the funds during unemployment to avoid high interest debt or paying necessary bills. 62 00:05:08,040 --> 00:05:14,910 And you know, sometimes you have to do what you have to do, but you've got to proceed with extreme caution and consult a financial advisor. 63 00:05:14,910 --> 00:05:15,210 First. 64 00:05:15,210 --> 00:05:16,620 This is where you want to spend some money. 65 00:05:16,620 --> 00:05:17,130 My friends. 66 00:05:17,520 --> 00:05:20,310 And speak to a professional before you make any moves. 67 00:05:20,640 --> 00:05:23,850 The story I'm going to tell you at the end, we'll highlight that completely. 68 00:05:24,150 --> 00:05:26,850 Your next option is leave the money in the old plan. 69 00:05:27,180 --> 00:05:32,220 You might choose to keep your savings in the former employers, 401k, or there 403B plan. 70 00:05:32,460 --> 00:05:40,830 If you like the investment options, or you want to delay moving the money, some plans allow you to do this so long as your balance is over $50,000, but you're going to have to look and see. 71 00:05:41,130 --> 00:05:43,170 Does this particular plan allow you to do that? 72 00:05:43,410 --> 00:05:48,900 The big drawback here is you won't be able to contribute more to that account since you no longer work there. 73 00:05:49,110 --> 00:05:53,970 And over time you can lose track of old plans and accumulate fees, which eat away at your balance. 74 00:05:54,240 --> 00:06:00,300 I have seen it more than once where a person will forget completely about that old 401k plan. 75 00:06:00,300 --> 00:06:01,770 They have, maybe they didn't have a ton in it. 76 00:06:02,010 --> 00:06:06,450 And then all of a sudden, they say to me, Ralph, you know, I think I have this plan with this other employer. 77 00:06:06,630 --> 00:06:10,530 And they find that they've been eaten a lot with fees, and then they got to do all these. 78 00:06:10,620 --> 00:06:11,130 Transfer. 79 00:06:11,130 --> 00:06:12,420 So you want to pay attention to that? 80 00:06:12,840 --> 00:06:15,780 Another option is to roll into a new employer plan. 81 00:06:16,140 --> 00:06:22,169 If your new job offers a retirement plan, like a 401k, you can roll over your old balance into that account. 82 00:06:22,169 --> 00:06:22,770 It's pretty cool. 83 00:06:22,770 --> 00:06:23,820 You can mix it together. 84 00:06:24,179 --> 00:06:29,580 This consolidates your savings into one place and allows you to keep growing tax deferred savings. 85 00:06:29,820 --> 00:06:32,190 You just need to make sure to directly transfer the money. 86 00:06:32,520 --> 00:06:37,590 You don't want to make a mistake here because if not, you may end up paying taxes and penalties. 87 00:06:37,919 --> 00:06:43,409 The downside to this is if you leave this employer too you'll don't have to make another rollover decision in the future. 88 00:06:43,710 --> 00:06:46,440 But again, I think this is a better decision than the first two. 89 00:06:46,919 --> 00:06:49,229 And the final option roll into an IRA. 90 00:06:49,499 --> 00:06:57,780 This is often the best approach moving the old 401k or 403B into a traditional IRA account allows you to consolidate savings. 91 00:06:58,049 --> 00:07:02,069 While maintaining flexibility and ultimately maintaining control. 92 00:07:02,339 --> 00:07:08,369 You have a wider array of investment options and likely lower fees because it's your IRA you can really choose to do with it. 93 00:07:08,369 --> 00:07:09,119 What you will. 94 00:07:09,389 --> 00:07:13,619 You just need to make sure you initiate a direct rollover to avoid any penalties. 95 00:07:13,859 --> 00:07:23,849 The only caveat is this required minimum distributions kick in at age 73 with IRAs, but not until retirement with employer sponsored plans. 96 00:07:23,969 --> 00:07:30,329 So this is something to consider, but not a huge drawback unless you plan to work for the new employer until you're over 72. 97 00:07:30,659 --> 00:07:33,359 But I don't know too many people that continue working at that age. 98 00:07:33,989 --> 00:07:38,489 So in summary direct, rolling over your balance into an IRA is ideal. 99 00:07:38,489 --> 00:07:40,889 For most people changing jobs. 100 00:07:41,099 --> 00:07:46,469 It keeps your retirement savings growing tax deferred and gives you more investment flexibility. 101 00:07:46,869 --> 00:07:50,739 Let me share some personal examples of handling rollovers in my own career. 102 00:07:51,039 --> 00:07:54,099 I remember when I left my first job out of college in an accounting firm. 103 00:07:54,520 --> 00:07:57,189 I had about $10,000 in my 401k. 104 00:07:57,640 --> 00:07:59,679 At that point, I opted to cash out. 105 00:08:00,009 --> 00:08:01,629 Probably wasn't the best decision. 106 00:08:01,929 --> 00:08:04,629 And it costs me about a half of it in tax. 107 00:08:05,049 --> 00:08:08,049 I could have done other things, but, you know, I was just starting out. 108 00:08:08,259 --> 00:08:16,119 I used the money to pay off some student loan debt and some other things, but it really wasn't the best financial and certainly wasn't the best tax decision. 109 00:08:16,479 --> 00:08:22,179 Later when I changed roles and went to a tech company, I did a direct rollover into an IRA this time. 110 00:08:22,539 --> 00:08:25,269 At that point, my balance was over $20,000. 111 00:08:25,509 --> 00:08:34,000 So I took that money and I rolled it into an IRA, more investment choices and lower fees made the IRA a better fit, and I didn't lose a bunch. 112 00:08:34,179 --> 00:08:34,900 In tax. 113 00:08:35,380 --> 00:08:39,969 However, when I took a new job at a nonprofit organization, that's when I went to work for a credit union. 114 00:08:40,270 --> 00:08:43,929 I chose to roll my IRA back in to their 403b plan. 115 00:08:44,169 --> 00:08:48,790 So I could take advantage of their employer match program and simplify my savings. 116 00:08:48,790 --> 00:08:51,489 And that worked up until I started my own practice. 117 00:08:51,729 --> 00:08:54,760 And now I just have a IRA account that I fund on my own. 118 00:08:55,120 --> 00:08:58,870 So as you can see, there are several smart ways to handle retirement accounts. 119 00:08:59,199 --> 00:09:01,079 When your career moves in a new direction. 120 00:09:01,349 --> 00:09:02,439 Just don't make the mistake. 121 00:09:02,439 --> 00:09:11,979 I did and cash it out unless you absolutely have to, you know, if you're going through a job downtime or you don't have a job or you've got something hanging over your head, you got to take care of. 122 00:09:12,280 --> 00:09:16,239 Sometimes you just gotta do what you gotta do, but ultimately it's not the best choice. 123 00:09:16,479 --> 00:09:20,439 The key is avoiding taxes and penalties while keeping your money working for you. 124 00:09:21,040 --> 00:09:25,660 Give yourself time to evaluate the best options instead of rushing in the withdrawals. 125 00:09:25,660 --> 00:09:26,500 You'll regret later. 126 00:09:26,859 --> 00:09:30,099 And don't hesitate to consult financial and tax experts. 127 00:09:30,400 --> 00:09:31,510 When you need guidance. 128 00:09:31,660 --> 00:09:36,640 So if you're changing jobs soon, here's some action steps as you navigate this transition. 129 00:09:37,000 --> 00:09:42,310 The first thing you want to do is find out the amount in your current retirement accounts and your investment choices offered. 130 00:09:42,640 --> 00:09:49,449 You'll find out whether they'll allow you to keep the money there, or if you have to take it out, this will help determine the best rollover option. 131 00:09:49,780 --> 00:09:53,260 Once you've done that research, the new employee's retirement plan options. 132 00:09:53,260 --> 00:09:57,880 If they have one, see if rolling into their 401k or 403b makes sense. 133 00:09:58,089 --> 00:09:59,859 See if it's something they even allow. 134 00:10:00,250 --> 00:10:04,390 The next thing you want to do is consider opening an IRA with an institution like your credit union. 135 00:10:04,689 --> 00:10:11,800 Maybe use your current investment advisor or companies like Vanguard fidelity, or Charles Schwab for a potential rollover. 136 00:10:12,069 --> 00:10:14,620 And I've gotta be honest with you, the names of these change sometimes. 137 00:10:14,620 --> 00:10:19,000 So if you're listening to this and one of those is no longer in business, I apologize ahead of time. 138 00:10:19,390 --> 00:10:25,599 The key to this is to compare the fees and the investment selections and make sure there's something that you want. 139 00:10:26,140 --> 00:10:27,430 And here's the key folks. 140 00:10:27,699 --> 00:10:35,469 Consult with financial and tax advisors to understand your specific situation, avoid penalties and minimize tax impact. 141 00:10:35,770 --> 00:10:39,910 It's always wise to consult with a professional because you don't want to make a mistake. 142 00:10:40,510 --> 00:10:45,790 The next thing you want to do, if you decide to move that money is initiate to direct rollover, once you decide on your approach. 143 00:10:45,790 --> 00:11:00,040 So once you decide what you're going to do, whether it's moving into the new employer, or if it's cashing it out, or if it's moving it into your own IRA, you do want to make sure you file all your paperwork with your former plans administrator and stay on top of that. 144 00:11:00,280 --> 00:11:03,099 And like I said, don't cash out money you'll need for retirement. 145 00:11:03,489 --> 00:11:05,650 If you do that, you lose your savings. 146 00:11:05,650 --> 00:11:09,040 So protect your savings and keep it invested for the future. 147 00:11:09,189 --> 00:11:11,319 There are time deadlines you need to meet. 148 00:11:11,469 --> 00:11:13,150 So make sure you stay on top of this. 149 00:11:13,150 --> 00:11:13,630 Remember. 150 00:11:14,050 --> 00:11:17,890 Just because you're starting a new job doesn't mean you have to abandon retirement funds. 151 00:11:17,890 --> 00:11:18,849 You worked hard to build. 152 00:11:19,120 --> 00:11:25,449 You don't have to start over with your retirement just because you're moving into a new job with smart planning. 153 00:11:25,449 --> 00:11:28,329 During a transition, you can maintain your savings. 154 00:11:28,329 --> 00:11:28,930 Momentum. 155 00:11:29,319 --> 00:11:30,520 Now, let me share that story. 156 00:11:30,520 --> 00:11:31,630 I promised earlier. 157 00:11:31,900 --> 00:11:36,459 A few years ago, I had a new client come in for a consultation and some tax advice. 158 00:11:36,550 --> 00:11:38,620 They actually wanted me to prepare their tax returns. 159 00:11:39,040 --> 00:11:42,969 They had decided to cash out their retirement account to pay off their home. 160 00:11:43,180 --> 00:11:46,599 As soon as I heard that, I was like, oh boy, this is going to be ugly. 161 00:11:46,959 --> 00:11:50,380 They told me that their financial advisor has suggested this plan. 162 00:11:50,380 --> 00:11:55,030 So they will not have a mortgage, but what an unmitigated tax disaster. 163 00:11:55,419 --> 00:12:04,539 Since this increased their income to well over $400,000 in the year, they ended up losing nearly 40% of their retirement money. 164 00:12:05,019 --> 00:12:13,719 And when I prepared their taxes, they had to take a home equity loan just to pay the federal state taxes triggered from this bone headed idea from their broker. 165 00:12:14,109 --> 00:12:18,879 It was terribly emotional and the clients just sat before me sobbing. 166 00:12:19,179 --> 00:12:23,499 With the realization that not only did they owe over $150,000 in tax. 167 00:12:24,009 --> 00:12:26,139 They had to take a mortgage to pay it. 168 00:12:26,409 --> 00:12:31,299 So now the whole plan of not having a mortgage was completely dashed. 169 00:12:31,719 --> 00:12:38,499 This just goes to show you that you have to really research your decisions and always, always. 170 00:12:38,889 --> 00:12:39,549 Always. 171 00:12:39,999 --> 00:12:44,919 Look into the people you're asking for, for advice, make sure they know what they're talking about. 172 00:12:45,219 --> 00:12:47,559 And make sure they have your best interest in mind. 173 00:12:48,129 --> 00:12:53,769 I know that was a rough story, but I hope this overview equips you to make wise decisions with the retirement accounts. 174 00:12:53,769 --> 00:13:01,749 When changing jobs, I encourage you to visit askralphpodcast.com for more financial wisdom and be sure to share this episode. 175 00:13:01,989 --> 00:13:04,089 And I want to ask for a special favor today. 176 00:13:04,539 --> 00:13:07,809 I want you to picture someone who is really struggling financially. 177 00:13:08,229 --> 00:13:12,969 And I want you to make a point of sharing today's episode with them and the show in general. 178 00:13:13,049 --> 00:13:15,059 my goal here is very simple. 179 00:13:15,389 --> 00:13:21,389 I want to help people achieve financial prosperity and provide for themselves and their family. 180 00:13:21,749 --> 00:13:27,089 We are living in tough financial times and we all need to find resources to help us. 181 00:13:27,329 --> 00:13:37,049 So please share this show with others and let's grow the audience and reach more people with a positive message of financial prosperity from a Christian perspective. 182 00:13:37,469 --> 00:13:41,819 I don't usually do this on Saturdays, but I felt compelled to close this in prayer. 183 00:13:42,209 --> 00:13:43,979 Lord guide us to be why stewards? 184 00:13:44,029 --> 00:13:50,539 of the resources you've given us, help us make prudent decisions with our finances during seasons of transition. 185 00:13:51,109 --> 00:13:55,069 Give us clarity on how best to protect and grow the retirement funds. 186 00:13:55,069 --> 00:13:56,869 We've accumulated over the years. 187 00:13:57,319 --> 00:14:00,739 remind us that you are Jehovah Gira our provider. 188 00:14:00,949 --> 00:14:02,929 So that money does not become an idol. 189 00:14:02,929 --> 00:14:04,189 We trust in more than you. 190 00:14:04,609 --> 00:14:06,619 Thank you for being a faithful, loving God. 191 00:14:06,859 --> 00:14:09,079 We give you all the praise and the glory. 192 00:14:09,439 --> 00:14:09,829 Amen. 193 00:14:10,249 --> 00:14:11,389 Well, that wraps up for today. 194 00:14:11,419 --> 00:14:16,219 My friends, I hope you feel empowered to navigate those retirement accounts wisely. 195 00:14:16,519 --> 00:14:19,399 When you change jobs, you don't have to start over. 196 00:14:19,519 --> 00:14:25,369 So as I always say, stay financially savvy and may God bless you and enjoy your Saturday. 197 00:14:25,369 --> 00:14:25,999 My friends. 198 00:14:27,699 --> 00:14:30,549 Outro: Thank you for joining us on the AskRalph podcast. 199 00:14:30,679 --> 00:14:34,319 And with a simple click to subscribe, we'll invite you back to our next episode. 200 00:14:34,499 --> 00:14:37,569 And remember, financial issues don't have to be complicated. 201 00:14:37,869 --> 00:14:38,909 Just AskRalph. 202 00:14:39,329 --> 00:14:44,939 The information contained in this episode of AskRalph is based on data available as of the date of its release. 203 00:14:44,999 --> 00:14:47,909 Saggio Accounting Plus and AskRalph Media Inc. 204 00:14:48,069 --> 00:14:51,419 is under no obligation to update this content if changes occur. 205 00:14:51,509 --> 00:15:02,159 Applying this information to your specific situation requires careful consideration of all facts and circumstances, and any information provided is not to be considered as financial, tax, or legal advice. 206 00:15:02,299 --> 00:15:06,249 Please consult your tax advisor or attorney before acting on any material covered.