Starting a new job can be an exciting milestone. This especially holds true if your new role comes with more responsibilities, better pay, and work you'll find more meaningful or engaging.
But in the course of getting a new job, there's one thing you don't want to overlook -- retirement savings. It's important to know how to manage your new and old 401(k) if you're getting a new job this year. Here are three key moves to make.
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1. Enroll in your new employer's 401(k) plan as soon as possible
When you're in the process of filling out employee paperwork and trying to get up to speed at a new job, a task like signing up for your new 401(k) plan might fall by the wayside. But you don't want to put it off if you can help it.
Some employers do have a waiting period that must pass before new hires can enroll in their 401(k) plan. But if your company lets you sign up for its 401(k) right away, you should jump on it. Delaying your enrollment by even a month or two means missing out on tax-advantaged growth.
That said, when you sign up for your new 401(k), don't just leave things at that. Also decide where your money will be invested once it lands in your workplace plan.
Most 401(k)s offer a target date fund, as well as a mix of actively managed mutual funds and passively managed index funds. Target date funds can be an easy option to fall back on since they adjust your portfolio's risk profile based on how close to retirement you are. But target date funds are also notorious for charging high fees and investing conservatively.
You may want to stick with a broad market index fund in your new 401(k). Index funds tend to come with very low fees that shouldn't eat heavily into your returns.
2. Understand what your new 401(k) match entails
It's common for employers to offer some sort of 401(k) match. If that's a benefit at your new place of work, figure out what that match entails so you can claim it in full. But also, figure out if your new company has a vesting schedule.
With a vesting schedule, you don't necessarily get full ownership of your workplace match right away. Rather, you may have to remain an employee for a certain period of time to actually snag that money.
It's important to know if you're subject to 401(k) vesting at your new job. But rest assured that any money you contribute out of your own paychecks is money you get to take with you, no matter what.
3. Figure out what to do with your old 401(k)
If you had a 401(k) through your former employer, you may have the option to leave your money in it even after changing jobs. But that's not necessarily the right call.
Over time, an old 401(k) can become difficult to keep track of. You may want to roll those funds into a new tax-advantaged retirement account you have better eyes on. That could be an IRA or your new employer's 401(k).
Rolling an old 401(k) into a new retirement account directly is generally your best bet. You may be able to do an indirect rollover, where you receive a check for your old 401(k) balance and you move the money into a new account yourself.
But make sure to complete that rollover within 60 days. Otherwise, your money is treated as a withdrawal, which could trigger a tax bill. And if you're not yet 59 and 1/2, it could also lead to 10% early withdrawal penalty.
A new job is a chance to grow your career and, if you're fortunate, your paycheck. But it's important to manage your new and old 401(k) carefully in that situation. So make these moves to get a solid handle on your retirement savings this year.
