Preparing for a New Job in 2025? Important Retirement Strategies to Implement Immediately
Preparing for a New Job in 2025? Important Retirement Strategies to Implement Immediately
February and January are typically when businesses tend to recruit the most individuals, as per Indeed's findings. Therefore, if you're aiming for a career change in 2025, this is a perfect time to submit your application. Your main focus will be to find a job that perfectly aligns with your skills and priorities. Once hired for a new position, you'll need to familiarize yourself with your new responsibilities.
Remember to also assess your retirement savings strategy during this transition period. Here are three key steps to follow:
1. Decide what to do with your old 401(k)
If you had a 401(k) with your previous employer, you are responsible for deciding its fate. If your balance is less than $1,000, your employer has the right to close your account and issue you a check. You must deposit this money into a new retirement account within 60 days, or the government will treat it as a distribution, subjecting you to taxes. If your balance ranges between $1,000 and $5,000, your employer may decide to roll your funds into an IRA without your consent.
If your balance exceeds $5,000, your employer is obligated to keep your money separate, but you might prefer to roll it over into an IRA for better investment control. Alternatively, if your new plan permits it, you can transfer your old 401(k) funds into your new plan.
When moving your money, opt for a direct transfer instead of an indirect transfer. A direct transfer involves instructing your previous plan administrator to transfer your funds directly to your new account, avoiding potential tax issues. With an indirect rollover, your employer is required by law to withhold 20% for taxes. You must deposit the full amount, along with the withheld 20%, into a new account within 60 days to avoid taxes and penalties.
2. Determine your eligibility to contribute to your new 401(k)
Your eligibility to contribute to your new employer's 401(k) may depend on employer requirements. Some employers might require you to complete one year of employment and reach the age of 21 to participate in their plan. Part-time employees may need to show two years of employment with at least 500 hours of service in each year.
If you're not eligible to contribute to your new 401(k) immediately, you'll need to devise a backup plan. An IRA can be a suitable alternative as you can open one without the employer's involvement and have control over your investments. However, for a Roth IRA, you must be cautious of income limits.
Automating your contributions could make the process more manageable. Set up an automatic transfer from a linked bank account so you don't have to regularly transfer funds manually. Consult your IRA provider if you're unsure of how to set this up.
3. Adjust your investment strategy
A new employment opportunity might bring a change in salary, requiring you to reconsider your savings per month or pay period. Aim for a 10% to 15% annual savings rate, but be aware of contribution limits.
For 401(k)s, adults under 50 can contribute up to $23,000 per year, while those 50 and older can contribute even more. Irrespective of the plan, ensure that your cumulative contributions do not exceed the annual limit of $7,000 (or $8,000 for adults 50+) in an IRA.
Explore the investment options available to you, aiming to maximize your gains while minimizing risk. Index funds and target-date funds can be beneficial options, providing diversification and minimal fees. Regularly reviewing your investments and adjusting your strategy as needed is essential to ensure long-term growth and security. Set a reminder on your calendar to reevaluate your investments in 2026.
During this transition period, it's important to consider your retirement savings strategy. If you had a 401(k) with your previous employer, you'll need to decide what to do with it, as your balance over $1,000 must be rolled over or transferred to avoid taxes. Additionally, as you begin your new job, you should determine your eligibility to contribute to your new employer's 401(k) and consider adjusting your investment strategy to maximize your gains and minimize risk, especially considering any changes in salary. While you're focusing on your career change, don't forget to manage your finances effectively to ensure a comfortable retirement.