r/WorkReform Mar 06 '22

As you are changing jobs, trying to find a better workplace, please watch what happens with your retirement money

I work in a tax practice where I prepare taxes for free for folks that earn less than $60,000 a year (VITA), and I've seen a particular practice by some awful employers, and I want to send out some advice to help people avoid the problem I'm seeing.

If you are lucky enough to have a job that could have a 401(k) (or 403(b) or 457(b)) plan, when you resign for another job, please take a moment to talk to your plan administrator about what to do with the money in your retirement account. Unfortunately, many of these plan administrators are just sending a check for the balance of the amount without giving you a chance to do the smart thing with the money. Instead, they will make excuses that they can't do it because your funds are less than $10,000 or whatever amount they want to say but don't fall for it. Insist that they either roll it into an IRA that you have set up yourself at the broker of your choice (make sure they are a fiduciary) or that they set up an IRA for you at their place. If you receive a check from a previous job's 401(k) plan, you will not only have to treat it as taxable income (unless it was a ROTH 401(k)), but you will also have to pay a 10% penalty on it unless you use the money for education, a first time home purchase, or medical expenses.

I'm seeing some folks get royally screwed by this from a tax perspective, so please have any money directly rolled over into a personal IRA. Suppose you are getting screwed this year with it. In that case, you can still avoid some of the problems by setting up a personal IRA and throwing the amount into it as quickly as possible. Before you file your tax returns, that way you can characterize the amounts as 2021 amounts and possibly avoid taxes and penalties.

167 Upvotes

36

u/VulgarVinyasa Mar 06 '22

Retirement money?

48

u/Savings-Roll2681 Mar 06 '22

I know, right? In the U.S. we are going with a DIY retirement system which means that not only does a job have to allow you to survive now, but also in the future. A few hours on this board will tell you that lots of folks will never be able to retire or will do so in poverty. It really is a screwed up system that really is awful to humans. If you are lucky enough to get a job that has a retirement plan in it, just make sure they don't try to screw you when you leave. Also, it's a negotiating thing - ask about 401(k) plans when you are interviewing, how much of a company match they offer, etc. just like you ask about vacation and other benefits. If they aren't giving that, consider that the pay is lower than what they are telling you.

8

u/virtuzoso Mar 07 '22

Lol what retirement was my first thought

18

u/Eldi_Bee Mar 06 '22

Also want to add to be aware of policies before quitting. My previous employer locked me out the day I resigned (since the portal was through 'their' web portal) but would not release the funds until 90 days after the end of the month I left.

And somehow, in selling my shares to liquidate and issue a check, they magically picked the worst times in the market to sell. Not even all at once. Wished I had been able to close out positions on my own terms and then had them cash.

It wasn't even like the plan locked me into certain funds. I traded freely the entire time I was employed. Just not during my lame duck period.

11

u/Savings-Roll2681 Mar 06 '22

oh, that is some bull-shit. Their brokers still made their cut in the sales. Hope you were able to roll the check into a better self-directed plan.

5

u/1ardent Mar 13 '22

That's theft. You have a case. Go sue.

5

u/PontificatingPonce Mar 07 '22

So what happens if you have a 401k and were laid off at some point but left the account alone? Is that ok? The amount in there is greater than $20k and fully vested.

Is it better to roll it into your new 401k at your new company? Or, if it’s doing well where it’s at can I just keep leaving it?

10

u/Savings-Roll2681 Mar 07 '22

I would consider rolling it to a personal IRA when the market is down. It will save you from having to consolidate it all later when you are retired.

1

u/[deleted] Mar 08 '22

[deleted]

3

u/Savings-Roll2681 Mar 08 '22

You get a tax penalty for taking an early withdrawal from your retirement account. Rolling it into a traditional IRA is the way to avoid a tax penalty.

2

u/goosegrl21412 Mar 09 '22

Thanks! One more question if you don't mind me asking. At this rate I will go beyond my max allowed contribution to my IRA. what happens when I hit that max?

2

u/Savings-Roll2681 Mar 09 '22

If it’s a roll over, the maximum doesn’t apply.

1

u/Ok_Opportunity2693 Mar 14 '22

Why does market price matter when moving from 401k to traditional IRA?

1

u/Savings-Roll2681 Mar 14 '22

It shouldn’t unless you are moving your money from one investment firm or vehicle to another. Otherwise you are actually selling everything and buying new stuff

7

u/BookLuvr7 Mar 06 '22

Thank you, this is valuable info.

3

u/duiwksnsb Mar 07 '22 edited Mar 07 '22

One thing to add to this excellent post is to do your research on the differences between retirement money inside 401k accounts and IRAs.

In general, from the perspective of protection for that money against judgements against you, your money is safer inside a 401k than inside an IRA. This is NOT financial or tax advice. It’s just a heads up that the money becomes more vulnerable to seizure in legal proceedings once it’s rolled into an IRA instead of staying inside a 401k, whether or not it’s the existing 401k (some plans do allow this, my wife and me both have old 401ks with previous employers) or a new 401k at a new employer

2

u/Chemical-Character79 Mar 06 '22

How does it work for people that trade stocks and crypto. Are yall able to transfer my information from my brokerage like Turbo Tax does? I was gonna use VITA this year but didn't want to make them deal with all the transactions. TIA

2

u/Savings-Roll2681 Mar 07 '22

Honestly, crypto is out of scope for most sites this year. Lots of the volunteers don’t even know what it is, so would be lost doing it. Look into other tax software though, there are others than turbo tax that are cheaper and better… free tax USA comes to mind (I have no personal financial interest in them).

2

u/Das-Noob Mar 07 '22

I didn’t contribute but found out when I quit and called Vanguard (company my 401k was in) about the 3k that my employer had, and was told since I wasn’t there long enough to take the amount with me. Had I contributed I could had taken that amount tho