Returning to Work After Time Off


 If you've taken a break from your career — to be with your family, to go back to school, to start your own business or other reasons — you'll want to take a moment to understand the new products, laws and financial trends that have emerged since you left the workforce.

It may also be a good time to set new goals, priorities and strategies. To get back on track, you will need to determine where you left off and explore the best ways to catch up.

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The first step is to evaluate your current savings, including any retirement plans from previous employers, as well as individual investment accounts, such as IRAs or after-tax annuities. Review the amount of assets you have accumulated, as well as the policies and procedures governing these accounts.

For example:

  • What are the tax implications?
  • Are there contribution limits or minimums?
  • Are any special catch-up provisions provided?

It's also important that you learn about recent updates to your plan.

Consolidate funds

Once you have a clear understanding of your financial picture, it's time to decide what you want to do. You may be able to transfer, consolidate or roll over funds from your previous plans into an IRA.

Roll over pretax money

You may be able to roll over pretax money among your 401(k)s, 403(b)s and IRAs. Transfers may be subject to differences in features, costs, and surrender charges among your plan providers. Indirect transfers may be subject to taxation (mandatory withholding) and penalties. Consult with your tax advisor regarding your particular situation.

You may be able to leave your account with your former employer. However, if the options of your former employer are limited, you may be missing out on a wider range of investment choices and options. Also, some employers require a minimum balance in order to leave the money in their plan.

Catch-up contributions

One way to maximize your savings is to contribute the most you can in the plans you have. In other words, put as much money away as the IRS and the plan allow.

For example, if you open a 401(k), your contributions can be taken out of your salary in pretax dollars before you get your paycheck. Your contributions go directly into your investment choices, free of federal taxes — and in most cases state and local taxes, too — until you take withdrawals or start income later on. Withdrawals are subject to ordinary income tax and a federal 10% penalty may apply to the taxable portion of your distributions taken prior to age 59½. For individuals age 50 and over, the Internal Revenue Code allows "catch-up" contributions to certain retirement accounts, so that eligible employees who are age 50 and over can contribute a certain amount of money over the standard annual limit.

IRA Contribution Limit for 2013
IRA Contribution LimitIRA Contribution Limit (50 and older)
$5,000 for 2012
$5,500 for 2013

$6,000 for 2012
$6,500 for 2013

When estimating allowable catch-up contributions, combine all catch-up contributions made by your employer on your behalf to the following plans:

  • Qualified retirement plans1
  • 403(b) plans
  • Simplified Employee Pension (SEP) plans
  • SIMPLE plans

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