 Changing jobs changes retirement plan
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 Dear
Dr. Don,
I've accepted a new job that pays $70,000. The new firm has
a 401(k) plan but they do not match the first year's
contribution. At my current job, I'm contributing 13 percent and
would like to increase it to 15 percent. Since there is no
match in the first year, I'm trying to decide if I should participate
in the new company's 401(k) or wait until next year,
since I have at least 35 years to go before I retire.
If I wait until my second year to participate in the 401(k)
plan, the only options I know about for this year are a traditional
IRA, Roth IRA or an emergency fund. I do not have an emergency fund
and would love to build one quickly, but I also would like to continue
with my 401(k) participation. I currently I have $37,000
socked away. What do you advise?
-- K. Cache
 Dear
K.,
Your ability to deduct contributions to a traditional IRA account
is limited if you are eligible to contribute to your employer's
retirement plan, although you have the ability to make nondeductible
contributions to the IRA account. Roth IRA eligibility is based
on income levels.
IRS Publication
590, Individual Retirement Arrangements, provides guidance and
work sheets, or you can contact your tax professional if you're
uncertain about your ability to make deductible contributions to
a Roth or traditional IRA account.
An emergency fund is normally invested in short-term
money market investments, like a money market account with a bank
or a money market mutual fund. A Bankrate feature, "Building
an emergency fund," explains in greater depth how to size
and invest the fund.
If you're 35 years from retirement and have already
put aside 13 percent of salary this year in the 401(k)
plan of your current employer, I think it's a better idea to spend
the balance of this year building an emergency fund. When your new
firm starts matching your 401(k) contributions you
should, at a minimum, contribute up to the limit of the match. The
decision on where to go from there depends on whether a Roth IRA
makes sense for you for any additional retirement savings.
When you switch jobs you'll have some options as to
whether you want to keep the money where it is, roll the money from
the old 401(k) into the new employer's plan or put
it in an IRA rollover account. If the old 401(k)
plan has company stock in the plan you'll definitely want to work
through the net unrealized appreciation issues with a tax professional
before deciding what to do with the old plan. An earlier Dr. Don
column, "Risk
of rolling over 401(k) with company stock,"
has more on that issue.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "financing
a home," "saving & investing" or "money."
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