Things You'll Need:
- Retirement plan from former employer
- Current or new employer's retirement plan (ex: 401K)
- Rollover IRA account
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Step 1
Ask your new company if it has any retirement plan such as a 401K, then sign up and start investing from your very first paycheck.
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Step 2
Transfer money from your former employer's retirement plan to your current employer's 401K Plan. This will allow you diversify and keep that old account earning money as you save up for your retirement. Find out from your former employer's human resources office or those managing your company's plan on how to go about it. Usually, they would need to write a check and you would need to immediately transfer it to your new account to avoid tax consequences. Some plans allow electronic transfer so you will not be tempted to spend it.
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Step 3
Leave your money in your old plan. This may be the easiest answer; however, bear in mind that you will no longer be allowed to make contributions.
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Step 4
Request a cash distribution from your old plan. You will receive a cash payout in a lump sum, less income taxes and, possibly, a 10 percent early-withdrawal penalty. Do this only if you don't have an option or if you are in dire need of money.
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Step 5
Transfer your money to a rollover IRA. This may be the wisest choice because it allows workers to maintain important tax-deferral benefits and to exercise the most control over their investments. One could have a broader array of investment choices from mutual funds, stocks and CDs. Doing this directly through electronic transfer or authorizing a check disbursement to your rollover IRA is a better choice because, otherwise, if you fail to move the money within 60 days, you will be charged with income taxes and a possible penalty.
