Seeking Out a New Job? Here's Why You May Want to Open an IRA First

It could spare you a hassle later on.

The decision to leave a job is a big one. Even if you're hoping to seek out a job with better pay and superior benefits, there's something to be said for the familiarity of your current workplace.

But maybe a new job will offer you more opportunities to advance your career. So it pays to pursue a new job if you think that'll make you happy. Before you do, though, it could pay to open an IRA account for retirement savings purposes. Here's why.

You'll have a home for your retirement savings

Many companies offer workers the option to save for retirement in a 401(k) plan. But not every job comes with this option. And if, for example, you're looking at moving from a large company to a small business, you may not have access to a 401(k) at your new job.

Meanwhile, if you have money in a 401(k) at the job you're thinking of leaving, you'll need to figure out what to do with it. Leaving it where it is may be an option, but not necessarily your best one.

If your new job has a 401(k), your ideal option may be to just roll your old 401(k) into your new one. But since your new job may not offer a 401(k), a good backup plan is to open an IRA on your own so you'll have a place to roll your old 401(k) into.

See, if you cash out a 401(k) when leaving a job, it will be treated as an early withdrawal if you're not yet 59 1/2 years of age. And that will mean facing a 10% penalty, which is something you don't want.

Plus, you should really make every effort to keep the money you've saved for retirement tucked away in a dedicated retirement account. So if you open an IRA while you're in the process of switching jobs, you'll have a place for your old 401(k) funds to land.

You might want an IRA even if your new job offers a 401(k)

Since many companies -- even small ones -- do sponsor 401(k)s, there's a decent chance that if you get a new job, you'll have the option to save in an employer retirement plan. But that doesn't mean you'll want to.

One downside to saving in a 401(k) is that these plans tend to come with hefty administrative fees that can eat away at your returns. Also, 401(k)s don't offer the same wide range of investing choices as IRAs.

With an IRA, you can put your money into individual stocks if you so choose. With a 401(k), you're generally limited to a bunch of different funds, some of which might come with high fees.

Now if you're getting a new job with a 401(k) plan and your new employer offers some sort of match, then it pays to contribute enough to that plan to claim that match in full. But if you're otherwise not in love with your new 401(k), don't save in it beyond getting your match. Instead, open an IRA to roll your old 401(k) into, and then continue to save and invest in that IRA as you see fit.