If you're returning to work after taking a break from your career — to be with your family, go back to school, start your own business or other reasons — it may be a good time to set new financial goals and develop new strategies to meet them.
To get back on track, you’ll need to determine where you left off and explore the best ways to catch up if you need to.
If your new employer offers a retirement plan, make sure you enroll and start contributing as soon as you can. Many companies offer a matching contribution up to a certain percentage of their workers’ savings into a retirement plan. For example, your employer may contribute a dollar for each dollar you save, up to 6% of your total salary.
If this is the case with your employer, contribute at least as much as they’ll match— a percentage point or two can make a big difference in your total savings. Plus, choosing not to participate is like leaving free money on the table.
Look at your current savings
Review your assets and accounts, including any retirement plans from previous employers or individual investment accounts like IRAs or after-tax annuities. Ask questions about the policies and procedures governing these accounts, like:
What are the tax implications?
Are there contribution limits or minimums?
Are any special catch-up considerations available?
Know your options1
Once you have a better understanding of your financial picture, it's time to decide what you want to do with any money you may have in old retirement plans. You have a few options:
Leave your account with your former employer. If you leave your money where it is, you can continue to grow your savings tax-deferred; however, if your old plan’s options are limited, you may be missing out on a wider range of investment choices.
Roll over into your new employers plan. Keep in mind there could be differences in features, costs, and surrender charges among your plan providers.
Roll over into a new IRA. Depending on the type of transfer, there may be no income taxes or penalties to roll over. A new IRA may also offer a broader range of investment choices. Remember that some IRA investments may include trading expenses, like commissions and fees.
Withdraw your money. While you would have immediate access to your savings, there could be tax penalties, especially if you withdraw before you turn 59 ½. You may also miss out on tax-deferred, long term growth.
Regardless of which option you choose, you should talk to your tax advisor about your particular situation.
Make 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) or 403(b), 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 you could face a 10% penalty if you take withdrawals before you turn 59½.
For people age 50 and over, the Internal Revenue Code allows "catch-up" contributions to certain retirement accounts, so that eligible employees can contribute a certain amount of money over the standard annual limit.
The standard annual limit for contributing to an IRA is $5,500 in 2016 and $6,500 if you’re 50 and older.
When deciding how much you should contribute to catch up, make sure you consider that your employer may match any catch-up contributions you make to the following plans:
Qualified retirement plans2
Simplified Employee Pension (SEP) plans
1Prior to rolling over, consider your other options. You may also be able to leave money in your current plan, withdraw cash or roll over the assets to your new employer’s plan if one is available and rollovers are permitted. Compare the differences in investment options, services, fees and expenses, withdrawal options, required minimum distributions, other plan features, and tax treatment. Speak with a TIAA consultant and your tax advisor regarding your situation.
2 To determine if your plan is a qualified plan, ask your plan administrator.