Should You Save For Retirement When You're Between Jobs

Retirement savings is probably the last thing you think of when you're between jobs. But your future retirement doesn't disappear because you don't have a steady income. Consider the pros and cons of saving for retirement even if you aren't currently employed.

Don't Dip Into Your Retirement Savings

Nearly half of all workers withdraw funds from their retirement plans when they change jobs. You may also be tempted to do this, but it's a mistake. Spending your nest egg now means you may end up postponing retirement. You'll also pay 20 percent in federal taxes and a 10 percent early withdrawal penalty on the retirement savings you withdraw if you're not 59.5 years of age or use the money for an unqualified expense.

Switch to Low-Fee Retirement Accounts

Check your retirement fund statements and look at the administration fees. You may be able to save money by switching to a different company that charges less to manage your money.

Transfer Your 401(k)

You can typically roll over your retirement fund to an IRA after you change jobs. Perform a direct rollover, and you won't be taxes on the funds. If you decide to have the money paid to you directly before you invest it into another retirement account, you will pay up to 20 percent in taxes.

Open an IRA

You can't contribute to your 401(k) after you lose your job, but you can open an IRA with as little as $10. Your bank, accountant or investment advisor can assist you in opening this retirement account. Since there are no minimum contribution requirements, you can save as little or as much as you want until you start a new job and can begin saving aggressively again.

When opening an IRA, compare Roth and traditional options. Traditional IRAs give you tax savings now, and Roth IRAs allow you to take tax-free contributions when you retire, which could yield greater savings in the long run.

Think Small


Maybe saving a dollar a week sounds ridiculous to you. True, it's a small amount, but small amounts grow interest, and creating a habit of savings is also good training that you can keep up once you land a new job with steady income.

Add Windfalls

When you get back unemployment benefits, a tax refund or other windfall, invest all or a portion of it into your retirement fund. That money will grow for your future.

When you're unemployed, you may hesitate to make retirement account contributions. It can be a good idea, though. Follow these tips and talk to your former HR manager, accountant or financial advisor as you decide what the right move is for you.
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