If Your Company Is Struggling, You Should do This With Your 401(k) or 403(b) ASAP

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  • Saving for retirement in an employer-sponsored plan is a smart move.
  • If you're worried your company is about to fold, be sure to move your savings over into a new account.

Make sure you have a backup plan for your money.

If your employer offers a retirement savings plan, whether it's a 401(k) or a 403(b), it pays to contribute to it. And if you're not familiar with a 403(b), it's basically the same thing as a 401(k), only it's a plan offered by certain types of companies -- namely, nonprofits. Both a 401(k) and 403(b) allow you to save for retirement in a tax-advantaged manner, so these plans can be a very valuable workplace benefit.

But there may come a point when you start to worry about your company's ability to stay afloat. Maybe sales have declined significantly over the past year. Maybe inflation has wiped out the bulk of your company's profits. Or maybe your company was showing signs of a struggle well before the pandemic hit and inflation started to soar.

If you're concerned that your company will fold and you'll be out of a job, it's important to make sure to find a home for your retirement savings. And here's one good option to look at.

You can manage your retirement savings yourself

If you're able to find a new job before your company goes under, and that new job offers its own 401(k) or 403(b), then you can simply roll your savings into that new plan. But you may want to find a home for your retirement savings before you get a new job. And in that case, you can open a retirement account you manage yourself -- an IRA.

Now IRAs come in two main varieties -- traditional and Roth. With the former, you get a tax break on the money you put in, but withdrawals are taxed during retirement. With the latter, there's no immediate tax break, but your withdrawals will be tax-free.

Whether you decide to move forward with a traditional IRA or a Roth IRA, if you're worried about your company's staying power, open your own savings plan as soon as possible. Once you've done that, arrange for the money in your 401(k) or 403(b) to be rolled directly into your IRA.

Keep in mind that you may be presented with the option to get a check for your 401(k) or 403(b) funds and deposit that money into your IRA yourself. That's not an optimal route to take, because if you don't move that money into your new retirement plan within 60 days, it will be treated as a withdrawal and potentially taxed and penalized accordingly. (Retirement plan withdrawals taken before age 59 ½ are usually subject to a 10% early withdrawal penalty.)

A better bet is to have your 401(k) or 403(b) funds directly rolled into your new IRA -- meaning, one institution transfers that money to another. That way, you won't have to worry about making that deposit yourself.

Protect your money

You've probably worked hard to save money in your company's 401(k) or 403(b), so it's important to find a home for it if you're worried your retirement plan will soon be off the table. Of course, in that situation, it's also a good idea to dust off your resume and start networking so you're able to find a new job in short order. But if you open an IRA and arrange for your savings to land in it, you'll have one less thing to stress about as you go about the process of looking for work.

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