Understanding Your 403(b) Plan Options
A 403(b) plan is a retirement savings option available to employees of public schools, tax-exempt organizations, and certain ministers. As an eligible employee, it’s crucial to understand how these plans work and the options available to you when you leave your current district.
Leaving your job or district doesn’t necessarily mean that you’ll lose the funds in your 403(b) plan. Four common options are available for managing your 403(b) account when leaving a district:
1. Leave the Money with the Current Plan
In many cases, you can leave your funds with the current plan after switching districts or jobs. This option allows your investments to continue growing tax-deferred until it’s time for retirement. However, be aware that maintaining your funds in the old plan may subject you to certain administrative fees or limitations on investment choices. It’s important to weigh the pros and cons of this choice before deciding.
2. Roll Over into a New Employer’s Plan
If your new employer offers a 403(b), 401(k), or similar plan, you may be able to roll over your previous account’s balance into a new one without incurring taxes or penalties. This process can help consolidate retirement savings and streamline management of investment assets. Make sure to check with your new employer about their specific plan offerings and requirements.
3. Transfer to an Individual Retirement Account (IRA)
Another option is transferring your funds from the 403(b) to an IRA. IRAs offer various investment choices and can provide similar tax benefits as employer-sponsored plans like a 403(b), allowing you to maintain tax-deferred growth of retirement assets. Be cautious when executing this transfer, as improper handling could trigger taxes and penalties.
4. Cash Out Your Account
While cashing out your 403(b) might seem tempting, this option should be considered carefully. Withdrawing funds from your account before reaching the age of 59½ often incurs both ordinary income taxes and a 10% early withdrawal penalty. Choosing this route can also hinder your long-term retirement savings progress.
Conclusion
Understanding and weighing your options when leaving a district or changing jobs is an essential aspect of managing your retirement savings. Whether you decide to keep the funds in your current plan, roll over to a new employer’s plan, transfer to an IRA, or cash out, make sure to carefully consider the advantages and disadvantages of each choice. Consulting with a financial advisor can help you make informed decisions that promote long-term financial success.
