Navigating Short-Term Jobs and the 401(k)
In today’s job market, it’s not as likely that workers will stay with even just a couple of employers over the course of their career. Knowing that, it’s important to understand how to navigate your retirement accounts if you are considering a temporary job or changing employers anytime soon.
It’s easy to quickly pass on opening a new retirement account in either of these circumstances. However, you might be leaving money on the table. To know if it’s a good idea to open a 401(k) account at a short-term job, you’ll need to look at your employer’s vesting policies:
Vesting
If you have been keeping up with previous blog posts, you know the best way to maximize your retirement account is to take advantage of employer contributions.
Beyond the level of matching available, the most important point to consider is when those employer contributions become fully vested, or available to you. Not every company has the same policy, so make sure you ask. As they say, timing is everything. If you are leaving before the contributions become fully vested, opening a new 401(k) might not be the right move.
Taking it with you
Once you understand the vesting options and you know when you’ll be moving on, consider your exit options. Anything that you contribute to your accounts is yours to keep. 401(k) plans can come with you after you leave a job. They can be rolled into another qualified retirement plan offered by your new employer or into an IRA account – you can even let it sit as-is or cash it out.
The last point to consider when changing is borrowing flexibility. Many 401(k) plans allow you to borrow funds for a variety of purposes. You pay the loan back with interest via paycheck deductions. But most plans require you to pay the loan back in a short period of time after leaving. Be sure to check with your employer’s plan administrator on that detail before handing in your resignation. And rolling funds into a plan at the new job offers you that borrowing flexibility down the road, not to mention easier administration.
Before you go ahead and open the 401(k) account at a temporary job, make sure to check with your employer about the matching and vesting policies.
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