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Changing Jobs

When you're cleaning out your desk and packing up boxes for a career change, remember to pack up your retirement plan savings as well.

Making a transition from job to job – no matter the reason – can be a frenzied process. Sometimes the last thing you want to worry about is what to do with the money in your retirement plan. But taking educated steps can ensure that your vested retirement money remains in your control.

You can transfer the funds into an approved retirement account or "cash out" and take a lump sum payment. Taking the cash can be tempting, but also very costly. You'll actually receive only a portion of your balance, because you'll owe taxes at rates as high as 35% and you may have to pay a 10% penalty if you're younger than age 55. Despite the penalties, 45% of Americans withdraw the money from their account early, according to a 2005 study by Hewitt Associates.* Only 23% of those surveyed roll the money into an IRA or other qualified retirement plan.

You may want to think about keeping your investment options open – allowing your money to grow into a comfortable retirement nest egg by initiating a direct or standard rollover into a new IRA. This will allow your money to continue growing tax-deferred.** For a direct rollover, your plan's distribution check may, at your employer's discretion, be given to you or sent directly to the trustee of your new IRA or plan. In either case, the rollover check must be made payable to the trustee.

In a standard rollover, the check is made payable to you and you make your own arrangements to roll over the funds into an IRA or other plan within 60 days of receiving the check. The drawback to this type of rollover is that your former employer is required by law to withhold 20% of your distribution for federal income taxes. To avoid a taxable distribution, you'll have to come up with that amount from another source in order to complete the rollover within the 60-day period.

You are allowed to roll over the money into an existing IRA. However, maintaining a separate "conduit" IRA will allow these assets to be transferred to a future employer's eligible retirement plan. Depending on your future expectations, this may be the best choice for you as you seek new employment. It allows you the flexibility of moving your retirement funds should you choose to do so.

For more information or to further discuss your options for rolling over your retirement plan assets, contact a Personal Banker at any Community Bank location.