According to Indeed, January and February are prime months for job hunting, as companies tend to be on the lookout for new hires. So if you’re thinking about switching things up in 2025, it’s a great moment to send out those applications. Naturally, finding a role that suits your skills and aligns with your personal aspirations is a priority. Once you land a new job, there will be a learning curve as you get acquainted with your new responsibilities.
However, don’t overlook the importance of reviewing your retirement savings strategy during this time. As you adjust to your new position, here are three crucial steps to take regarding your retirement plans.
### 1. Decide What to Do With Your Previous 401(k)
If you’re leaving a job where you had a 401(k), you’ll need to make a decision about that money. Should your balance be less than $1,000, your former employer might close the account and send you a check. Keep in mind, you have 60 days to deposit this money into another retirement account, or it will be considered a taxable distribution. If your savings range between $1,000 and $5,000, your employer could transfer your funds into an IRA for you.
For balances over $5,000, the money stays put unless you decide otherwise. One option is to roll those funds into an IRA, giving you greater control over how they’re invested. Alternatively, if your new employer’s plan allows, you might be able to merge old 401(k) funds with your new account.
Should you choose to transfer the money, a direct rollover is often the way to go. This means instructing your old plan’s administrator to send funds directly to your new account provider. Opting for an indirect rollover places you in an unexpected tax situation, as your former employer is required to withhold 20% for taxes. Avoid this headache by ensuring the entire amount, including that 20%, makes it into your new plan within 60 days to sidestep taxes and potential early withdrawal penalties.
### 2. Check Your Eligibility for Your New 401(k)
Upon starting a new job, you might not immediately be eligible to contribute to the new 401(k) plan. Some companies require at least a year of service and a minimum age of 21 before you can start participating. Part-time workers often need two years of employment with at least 500 service hours in each year.
If you’re facing a delay in 401(k) eligibility, consider opening an IRA as it offers a flexible alternative. You have the liberty to decide how your money is invested and, with a Roth IRA, you need to keep an eye on income limits. Automating contributions from your bank account can simplify the process, so check with your IRA provider for assistance in setting up an auto-transfer.
### 3. Reassess Your Investment Strategy
Taking on a new role typically comes with salary adjustments, prompting a review of your savings rate per month or per paycheck. Aiming to save 10% to 15% of your annual income is a general target, yet be mindful of contribution limits.
This isn’t much of a problem with 401(k)s, which currently allow under-50s to stash away up to $23,000 annually, and even more if you’re 50 or older. On the other hand, IRAs cap contributions at $7,000 per year ($8,000 for those 50 and above).
Reviewing your investment options within these accounts is wise to ensure you’re optimizing returns while controlling risk. Index funds may appeal due to their diversification benefits and low fees. Target-date funds also offer a set-it-and-forget-it option, automatically adjusting their risk profile as time goes on.
Regularly revisiting your financial plan is smart, ideally at least once a year, as both the market and your financial situation can shift. Mark your calendar to revisit your investment strategy in 2026, just to keep everything on track.
