January and February are the most popular hiring months of the year, so now’s a great time to start searching for a new opportunity if you’re unhappy with your current position. But once you’ve landed another job, you’ll have more to think about than just learning the ins and outs of your new role.
You also need to rethink your retirement savings strategy. Here are three important moves that will help you do this.
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1. Decide what to do with your old retirement account
Keeping a retirement account with a former employer is usually an option, but it’s not always the best choice. Some 401(k)s can charge expensive fees, which eat away at your gains over time, especially once you no longer have access to an employer match.
You may be able to roll your old 401(k) over into your new company’s 401(k) if your new account permits this. Check with your plan administrator or your company’s HR department to learn if this is an option for you. Note that there’s usually a small one-time fee for doing any 401(k) rollover.
You could also roll your old retirement funds over into an IRA. This gives you complete control over how you invest your money and enables you to reduce what you pay in fees.
It’s usually best to do direct 401(k) rollovers whenever possible. This is where you tell your old 401(k) provider where you’d like the funds sent, and it transfers the money for you. You can also do an indirect rollover where you cash out your old account and deposit the funds in the new account yourself. But this can be risky because if you don’t deposit the funds within 60 days of your withdrawal, the government considers it a distribution and taxes you accordingly.
2. Learn the rules for your new retirement account
Understanding how your retirement account works is key to getting the most out of it. Once you land your new position, familiarize yourself with the plan’s contribution limits and investment options. If it offers an employer match, inquire about how the matching formula works so you know exactly how much you must set aside in 2023 to get the whole thing.
Keep in mind that some employers don’t permit you to participate in the workplace retirement account right away. You may need to work there for a few months or a year, for example, before you become eligible to put any savings here.
If that’s the case, you’ll need a backup plan for your retirement savings in 2023. Consider opening an IRA and putting your money here in the interim. Just be mindful of the IRA’s lower annual contribution limits. You may only put up to $6,500 in one of these accounts in 2023 if you’re under 50 or $7,500 if you’re 50 or older.
3. Choose your contribution amounts and investment options
Some employers set a default contribution rate and automatically invest your savings in a fund they choose for you. This may be better than not saving for retirement at all, but it might not be what’s best for you if you’re trying to grow your nest egg quickly.
When you have some time, look into how much the default contribution rate is and change this if you feel it’s too low or too high. If your employer doesn’t set a default contribution rate, decide how much you’re comfortable withholding from each paycheck. Many companies enable you to update this at any time through an online portal, but if you need help, you can always reach out to your HR department for assistance.
Review all your investment options as well and choose what makes the most sense for you right now. If none of the investments are a great fit, you may want to save in an IRA first so you have more options. Then, if you max that out, you can always return to saving in your 401(k).
The three steps above shouldn’t take a ton of your time, so it’s best to get them out of the way as soon as possible. Once they’re done, you can focus on getting acclimated to your new position. And if your situation changes over time, you can always revisit your retirement savings strategy once more.
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