/ 403(b) & 457 plans

Laid Off or Leaving? Don’t Fumble Your Retirement Plan

If you make the decision to leave your job or you are laid off prior to retirement, you may be tempted to cash in your 403b savings or 457 savings plan account. However, experts strongly discourage this as it could impact your retirement finances for years to come. Some of the drawbacks of withdrawing from your plan early include:

Lose Out on Growth – If you withdraw from your account now, you will not enjoy years of tax-deferred growth which can greatly increase the amount you have currently contributed. You will have to start over with a new savings plan when you start your new job.

The Full Balance Will Not Be Paid - Note that if you cash in your savings plan, you will not receive the full account balance.

You Will Pay Penalties - If you cash in before age 55, you will have to pay an additional 10 percent federal tax penalty for early withdrawal. There may be some exceptions to this rule, as in the case of disability.

You Will Pay Taxes Now - Your district will withhold 20 percent for federal taxes in addition to the state income taxes you will be required to pay. Note that there is no penalty for early distributions from a 457 plan, however ordinary income taxes will apply.

What Are My Options?

If you make the wise decision to preserve your retirement savings plan, there are several options that may be available to you:

Transfer to Your New Employer’s Plan – If your new employer also offers a 403(b), 457 or 401(k) plan, you could likely transfer your old plan’s funds to your new plan.

Transfer Funds to an IRA – You may have the option to roll over your 403(b) or 457 plan to a traditional or Roth IRA without penalty. Keep in mind that you need to make the transfer within 60 days. Note that if you chose a Roth IRA, your funds will be considered income and subject to tax. However, when you withdraw the funds during retirement, you will not have to pay taxes. With a traditional IRA, your money will grow tax-deferred until it is withdrawn for retirement.

Keep Your Old Plan – As long as your plan currently has at least $5,000, you may be able to remain within your former employer's 403b or 457 plan. If you are satisfied with your plan’s fund choices, this could be the best option.