pension plan). Too often employees, especially women, quit work, transfer to another job, or interrupt their work lives just short of the time required to become vested. Ask the personnel office, retirement plan administrator, or union representative about the vesting period and other details of your company’s plan. Do you keep copies of the documents that define the provisions of your retirement plan? In addition to asking questions of company or retirement plan officials, you should keep copies of the summary plan description (SPD) and any amendments.
What happens to your retirement benefits if you change jobs?
You may lose the retirement benefits you have earned if you leave your job before you are vested. However, once vested, you have the right to receive benefits even when you leave your job. In such cases, the company may allow, or in certain cases may insist, that you take your retirement benefits in a lump sum when you leave. However, other companies may not permit you to receive your money until retirement. The rules for your plan are spelled out in the SPD.
A word of caution: If you receive your retirement benefits in a lump sum, you will owe additional income taxes, and may owe a penalty tax. A better way is to reinvest your savings in another qualified retirement plan or an Individual Retirement Account (IRA) within 60 days. You avoid tax penalties, and you keep your long-term retirement goals on track. If you do want to reinvest the money, it is important that you do not directly receive it. If you receive the money directly, you will have to pay a 20 percent withholding tax on the amount you receive and then file for a refund in the next year, providing proof that you have transferred the funds to an IRA. Instead, instruct the retirement plan to transfer your money directly to an IRA you have established or to another qualified retirement plan. This is easy to do using simple forms supplied by the new plan. If you want help with the forms, representatives of the plan are generally available to assist you.