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The Ballad of the Lost Penny

Updated: Apr 1

A few years ago, I was at Silverwood Theme Park with my family. Throughout the day I was trying to talk my 7-year-old son into riding the biggest, scariest ride there - the Aftershock. We had checked before we left home, and he was just big enough to ride the ride. On our way across the park, he found a penny on the ground. Being the frugal kid that he is, he picked it up and stuffed it in the pocket of his shorts. He could not stop talking about the shiny penny he’d found. As we climbed onto the ride and the park attendants strapped him in, I was looking at him waiting to see the panic in his eyes. He seemed to be excited, but not too concerned. This particular ride starts by backing you up a steep slope before jutting forward. As the ride backed us up into the air, the penny fell out of his pocket. We could see it had landed on the trolley in front of us. Just as the ride started forward, he cried out, “My penny!” The whole rest of the ride, he was distraught that he had just lost his precious penny. He was so distracted by the loss of this penny that he did not take any time to enjoy the ride.

This is such a fun story to tell and is one of my favorites as a parent. It also illustrates how distracted we can be when something unexpected happens to us. One life event that many people are experiencing right now (or will at some point) is a change of employers. Whether this is a planned job change, or if you are one of the 40 million Americans who have found themselves unemployed due to current circumstances, changing jobs generally comes with a lot of emotion. It’s easy to miss important details in the transition.

We all know the importance of saving for retirement. This can look a few different ways. The one I want to focus on is job-sponsored plans. A big change in your income or your career creates an opportunity to make some changes with your retirement. These plans can come in a few different versions (i.e. 403(b), 401(a), 457, PERS, SERS, TERS, LEF, etc.). It’s important to know what type of plan you have when you are leaving your job and what type of plan your new job will allow you to participate in.

When you change jobs and have an old retirement plan, these are the most common options people employ:

1. Cash it out and pay the taxes and penalties. This is, unfortunately, the go-to option for many people going through a job change, especially for those who are going through an unexpected job loss. While every situation is different, and you may not have many options, this can also be a costly mistake. The biggest issue I have with removing money from retirement is that the money is rarely returned. After paying the taxes and penalties, you could end up with only a fraction of what you started with. If you know anything about compounding interest, you will know why you should keep your money in those accounts for as long as possible. Times are hard for many people right now, but please do your best to save money for retirement. It’ll pay in the end.

2. Leave your 401(k) where it is. While cost-effective, this option puts some responsibility on you now. Some retirement plans will kick you out if your balance is too small. If you have a loan on the money in your 401(k), I suggest you pay it back before you move your account. A while back I met with a client who left money in an old plan. The former employer changed retirement fund providers, and the client lost track of the money. Mind you - this was not a small chunk of change. It was an account with around $400,000 in it. We spent a couple of weeks tracking down this money. This is not a rare incident. In 2015, USA Today reported, “Americans lost track of more than $7.7 BILLION in retirement savings in 2015.” Yes, that was billion with capital B. If you find yourself in this boat, you can look for your account in Washington state’s unclaimed property website Even if you don’t think this applies, you should see if you have any unclaimed property out there.

3. Roll it to your new plan. Not every plan will allow you to roll an old plan in, but many do. This can help you keep track of your invested assets in a generally cost-effective manner. Be aware that some plans are cheaper than others. You might be able to take a loan on your retirement if the new plan will allow it. If you are someone who likes to manage your funds, this would be a route to consider. One disadvantage is that you are subject to the limits of your new plan and the advisor who is managing it. I have heard from many clients that the advice from their work’s retirement plan advisors seems a bit boilerplate and not custom for their situation.

4. Roll it over into an IRA and/or Roth IRA. The power of this option is gaining the insight of a financial planner. There is value in having an advisor who knows you and your situation. An IRA will also provide you with the greatest number of investment options and strategies. There are a few situations where this may not be a good idea. For example, if you plan to retire before age 59.5, or if you are a high earner wanting to add money to a Roth IRA through a backdoor IRA.

Whichever options you are looking at, it would be prudent to sit down and discuss your situation in detail with a Certified Financial Planner. They will be able to help you avoid pitfalls that may you might not have known to exist otherwise. There is no clear best route without being able to see your whole situation. Each option has a benefit and a disadvantage that must be weighed. Don’t lose out on the ride of your life because your penny fell out of your pocket.

Joe Johnson is a Certified Financial Planner and owner of Sage Hills Financial. He can be reached at (509) 888-1556 or at Securities and advisory services offered through LPL Financial, a registered investment advisor Member FINRA/SIPC.

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