The Great Resignation and Retirement Plan

Young woman waving goodbye as she leave her office with a cardboard box. Resignation.

. Before you  walk away from your job, evaluate these considerations.

#MoneyMonday #GreatResignation #Takethisjob

The great resignation, or the “quit rate” came alive at the beginning of the pandemic. And, the quit rate shows no sign of slowing down. According to the Bureau of Labor Statistics, last November 4.5 million employees voluntarily quit their jobs. Another 4.5 million quit their jobs in March of this year. Another 4.4 million did the same thing in April of 2022. According to the Pew Research Center, there are three major reasons for the exodus:

  1. Low pay (63%)
  2. No opportunities for advancement (63%)
  3. Feeling disrespected (57%)

But with all these resignations comes the critical financial decision, and that is, what to do with your retirement plan or 401(K) from the job you are leaving or planning to quit?

How Best to Take Your Money with You

There is no rocket science here. Your choices are to leave your plan with your old or former employer, transfer or roll it over to your new employer, or transfer your retirement into a new IRA. But before I share option considerations, unfortunately, I have to mention our favorite uncle–Sam!

Option 1:  Keep the Money Parked 

As a general rule, according to the Internal Revenue Service ( aka uncle Sammy), you only have 60 days from the time you receive your 401(K) distribution to roll it over or transfer it before facing penalties and interest consequences. If you are going to leave the money with your old or former employer, the 60 day rule does not apply. However, here’s a problem. If your retirement plan has an account balance below $5,000, your former employer has the option to cash out your plan! If they do cash out your plan, you will now have to face Sammy, paying a minimum of 10 to 20 percent in interest, tax and penalties if you are younger than 59.5 years old. Did I mention that Sammy is about to hire some 80, 000 new employees and upgrade the system?

Option 2: Roll the Plan Over to New Employer

One major benefit of rolling over your retirement plan to your new employer that is allowed is that you can borrow against your retirement plan with the new employer. If you leave your 401K with your former employer, you will not be able to borrow against that account. Is that an option you are comfortable with? Another consideration in transferring your account would be because of lower management fees and possibly better, and low cost investment options at your new employer.

Perhaps the most important point about rolling over to your new employer’s plan is to ensure that you do not exceed the annual contribution amount. For example, if you have already contributed $15, 000 this year to your former plan before leaving your former employer, you can only contribute $5,500 to the transferred or rolled over plan for this year. The point here is that just because you rolled over to a new plan, it does not mean you can contribute the maximum allowed in 2022 of $20,500.00 to the new plan.

Option 3: Roll the Plan Over to IRA

Rolling your retirement into an IRA if you are not accepted into your new employer’s account can have some benefits. The advantage with choosing this option is that you can build your own investment portfolio or strategy that is more customized to you. In rolling over to your new employer’s plan you may not be able to customize your investment plan or strategy. This is just another option if you decide to participate in the great resignation and end the relationship.

Perspective: One viewpoint from the great resignation is not simply that people were under-paid and over worked or that their lives lacked balance between work and family. Substantively, it suggests to me that people were not living in their purpose. They were working jobs just to collect a paycheck, but were not satisfied and did not find meaning in their life. If you are considering resignation, don’t just focus on the economics, but spend time aligning with your purpose!

WHAT’S UP!

Today’s what’s up is about Labor Day Sales. The holiday will soon to be here and you should pay attention to what deals may exist. Besides summer clothing, you may find discounts on large appliances . Therefore, if you are seeking appliances, it might be a good time to make that purchase. It may be also a good time to find discounts on mattresses. And that’s what’s up!

 

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