One of the easiest ways to save for retirement is to invest in a 401(k) at work and let the money grow. But this strategy doesn't work for everyone. If you change jobs a lot, you may have to take a different approach.
Fortunately, a non-traditional career path doesn't mean you can't set yourself up for a secure retirement. You just need to understand how job-hopping could affect your efforts to save, and find ways to deal with any challenges that could affect your ability to build the nest egg you need for your later years.
How could frequent job changes affect your retirement investing?
While a workplace 401(k) is often the best way to invest for your future, you may find that this type of account doesn't work well for you if you change jobs often. There are a few reasons for this.
Some employers have minimum service requirements you have to meet before you can sign up to participate in a 401(k) plan. If you regularly switch jobs, you may not stay long enough to be eligible to contribute. And even if your employer doesn't impose a waiting period before you can start contributing, any employer match that's provided may not vest until you've been with the company for a certain period of time. If you don't stay that long, you'll be able to keep your own contributions, but not matching funds an employer provides.
If you do end up contributing to a workplace 401(k) and then you leave the job, you'll have to decide what to do with the account. You can usually keep it invested where it is, although sometimes you must have a certain minimum amount invested to do that. But if you regularly change employers, you could end up with a whole bunch of different 401(k) accounts you have to manage. This can make it harder to keep track of your retirement savings efforts and to make sure you're maintaining a diversified portfolio.
If you can't or don't want to keep the money invested, you can do a 401(k) rollover and move the money into an IRA at a brokerage firm. However, there's often a small fee to do that. You also need to make sure you reinvest any funds you take out of your 401(k) into your IRA quickly, because otherwise you could owe taxes and penalties for an early withdrawal of retirement funds.
How can you save for retirement if you change jobs a lot?
If you change jobs often, it still may make sense to invest in a 401(k) when you're offered access to one -- especially if you have an employer match that vests right away. If you do, you'll get free money from your employer that you get to keep even if you leave. If there's a matching contribution that does take time to vest and there's even a chance you may stay long enough, it still makes sense to invest using the company's 401(k). There's little reason to pass up the possibility of free money.
If there's no employer match, contributing to a 401(k) at a job you don't plan to stay at can still simplify the retirement investment process, since you can have contributions taken directly out of your paychecks. And 401(k)s have larger contribution limits than IRAs. However, if you don't want the hassle of handling multiple 401(k)s from all your different employers, you'll need to be prepared to roll the money over into an IRA when you leave each job.
If you don't have access to a 401(k) because you don't meet the company's service requirements, since you haven't been on the job long enough, an IRA can be a great account to save in. You manage your own IRA at a brokerage firm of your choosing, so you can always invest in the same account no matter where you're working. And if you want to keep all your retirement funds in one place, you can simply roll over funds from any 401(k)s you've invested in into your IRA every time you leave a position and move on to your next one.
Don't let a non-traditional career path derail your retirement plans
Today, more people than ever change jobs often or work in non-traditional jobs. If you're one of them, you can still build the nest egg you need to enjoy life as a retiree. Just make sure you understand the rules for how 401(k) contributions vest, and make smart choices about what retirement accounts to use to maximize the tax breaks you get for retirement savings.