When you change jobs, what do you do with the money you have accumulated in you company retirement plan? Tthe average American will have to answer that critical question eight times during a 40-year career. While retirement plan assets are typically as mobile as the workers themselves, nearly 60% of people who change jobs choose to take a cash distribution, despite the drawbacks.

Taxes Now or Later?

A cash distribution may trigger a 20% federal withholding tax, as well as a 10% tax penalty if you are younger than 59 . It will also mean youll no longer enjoy the potential benefits of tax deferral that a qualified retirement plan offers. Even small retirement plan contributions may help you pursue large financial goals when earnings are allowed to compound tax deferred over time. You want to maintain your tax-deferred status as long as possible to maximize your gains.

Leave the money in your former employers plan.

Your former employer is required to allow you to leave the money where it is, if the balance exceeds $5,000. You can no longer contribute to the account, but you can still decide how the existing assets are invested.

Roll the money into an IRA.

By rolling the money directly into an individual retirement account (IRA), youll avoid taxes that youd incur if you took a cash distribution, plus you are able to enjoy the benefits of tax deferral. An IRA also has greater investment flexibility because unlike a company retirement plan, an IRA gives you the freedom to select mutual funds and other securities that best suit your needs.

Roll the money into your new employers plan.

By rolling the money directly into your new plan, youll avoid taxes that could eat away at a cash distribution. It'll also simplify your investment paperwork since youll only have one set of investments to monitor. Even if youre not immediately eligible to contribute to the plan at your new job, you may still be able to roll the money over right away.

Make a Choice That Fits Your Goals. If you plan to change jobs, dont take the money and run. Meet with your investment representative to explore alternatives and consider the potential impact on your long-term financial goals.