Photograph by Dan Saelinger for
By Penelope Wang
March 15, 2016

This is the last article in a four-part series on the best ways to use tax-advantaged savings vehicles to jump-start—and turbocharge—your retirement. (Here are parts one, two, and three.)

Whichever tax-deferred account you use, the ability to delay paying taxes for years, or even decades, has a powerful economic impact.

That is, assuming you keep the 401(k) in a tax-deferred account even as you change jobs over the years. If you cash out your plan before you hit retirement age or borrow from it and fail to repay, you’ll have to pay not only income tax on the money but also a 10% penalty. The Boston College Center for Retirement Research released a study last year showing that a diligent 30-year-old saver would end up with a retirement account 34% larger at age 60 than that of a saver who borrowed from his account and cashed out his plan as often as people normally do when changing jobs. So keep deferring taxes on that tax-deferred money.

Smart Moves

Choose which way you roll. Each time you change employers (and odds are you will), decide what to do with the money at the job you’re leaving. You can keep it there (most plans allow that), move it into your new plan (if the new plan permits it; not all do), or roll it over into an IRA. Take into account both investment selection and the convenience of consolidation. Financial firms will make it easy for you to roll your money over into their IRAs. While the government’s TSP permits rollovers from tax-sheltered accounts, not all 401(k)s and 403(b)s do; you’ll have to check your new plan’s rules.

When you move your money, do what’s called a trustee-to-trustee transfer, or direct rollover, in which your old plan’s custodian sends money directly to the new one. Having your old plan just write you a check can backfire: If you don’t move it into a new plan within 60 days, the IRS will charge you taxes and a penalty.

Sit on your hands. In certain cases you should leave your account alone, even if you don’t like your investments there. If you hold an annuity in a 403(b), you may have to pay a surrender charge (which decreases over time) if you transfer themoney out. You may want to wait for the surrender charge to fall before moving your money. And for the first two years after you open a Simple IRA, the only place you can move the money without penalty is to another Simple IRA. For more rules, see the retirement-plan rollover chart at IRS.gov.

Assess your progress. However much you have already saved, you may wonder whether you’re on pace for a secure retirement. Estimate your future income by entering your account balances and savings rate in the T. Rowe Price Retirement Income Calculator. For a less detailed—yet almost fun—quick check, adjust the sliders on Vanguard’s interactive retirement income calculator. The feedback you’ll get will help you map out the rest of your journey.

Part one: These Low-Cost Strategies Can Save Your Retirement
Part two: Two Easy Ways to Get Just the Right Mix of Stocks and Bonds
Part three: Totally Realistic Strategies for Boosting Your Retirement Accounts
Chart: Your Retirement Plan Options at a Glance

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