Investing into financial funds is very important if you are not lucky with your rich uncle (I mean, if you do not have a rich uncle to make you a millionaire over night). It’s not just about to make you more richer (which is not bad), but also gives you a safe retirement. I’ve seen people 75+ age of old who is still working and struggling with their bills, and not enjoying themselves on a beach in Hawaii with a couple of younger women Anyway, you got the idea.

Retirement savings is a very hard process - you have to force yourself to put away a chunk of money and you cannot withdraw it without a penalty of 20%-45% (IRA or 401(k) funds) before you hit the retirement age. Besides, your government wont make it easier for you either, changing retirement saving fund regulations every 2-3 years…

I consider myself young in my thirties, and I tend to change jobs every 6 month or 2 years. I just become bored with the office drama, or the whole direction of a company’s objective. It does not hurt my career, nor my savings, nor my annual income (maybe a little bit, but I don’t suffer from it). And it should not, if you plan your moves ahead. The longest period I was unemployed is two weeks, and I consider it as a forced vacation

New Company, New Fund
When I join a new company, one of standard bonuses I’m offered is 401(k) contribution matching (3% to 4%). I never decline this bonus and I recommend you do the same (free money, you know). However, jumping from company to another always create a new 401(k) fund in my name, and some companies are not that flexible to contribute into my own, private 401(k). So, when you leave your old, stale and hated job, you have several options for your company’s 401(k):

1. Ask for a check to withdraw your 401(k) money. Very, very bad decision! If you decide to take the cash, your employer is required to withhold 20% off the top for federal taxes.
2. Roll over to your existing private 401(k).
3. Roll over to your IRA.

Roll The Stone
My choice is rolling over to my IRA. Rolling your retirement into an IRA(or your own 401(k)) when you leave a job is critical if you aim for long-term investing success and safer retirement. Not only do you avoid immediate taxes and early-withdrawal penalties, but you preserve valuable tax-deferred growth. For example, let’s say you’ve accumulated $10,000 in your company 401(k) (I will not remove those 20% required by your employer, just to demonstrate a pure tax situation), if you take the cash upon quitting the job, you will be giving away $2,500 for federal taxes (if you are in 25% tax bracket), state taxes (0%-7%, depending on your US or Canada state, etc) and also may give away another $1,000 if you are under age 55. Nice, isn’t it? If you are lucky and your state has 0% tax, then you will be left with $6,500 only from your $10,000.

However, if you had rolled the full $10,000 into an IRA when you say goodbye to your coworkers, in 20 years, your tax-deferred 8% rate (average for IRA accounts) will create about $47,000 ($6,500 would make you only $30,000).

Share This