For many people, changing jobs is a natural part of climbing the career ladder. Few employees or employers expect workers to do their "40 years and out" in this age of a highly mobile workforce.

One of the consequences of job-hopping is dealing with multiple retirement plans. If you change jobs, you have several options concerning your retirement account.

The simplest and most flexible option may be to roll the distribution directly into an IRA. This is a direct distribution and may be the best way to handle the rollover.

In an indirect rollover, your old employer sends a check to you but is legally required to withhold 20 percent for income tax purposes. To avoid penalties for taking a non-qualified distribution, you have 60 days to place the funds in another qualified retirement account. But here's the catch: You must contribute the entire amount of your previous account, making up the 20 percent difference from your own pocket. You can recover the money later, when you file your income taxes.

Handling the rollover this way can be a headache, particularly if you have trouble replacing the 20 percent withholding. If you have the employer transfer the funds into the IRA directly, or send you a check payable to the financial institution housing your IRA, there is no required withholding.

If you fail to reinvest the distribution before the 60-day deadline, you must pay a penalty plus ordinary income tax on the distribution.

You cannot roll your retirement account directly into a Roth IRA. However, you can roll your account into a traditional IRA and then convert it to a Roth IRA.

 

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