Don't neglect retirement plan when you switch employers

Q: I just started a new job and I'm not yet eligible to participate in my company's retirement plan. What steps can I take to save in the meantime?

A: Many employers impose a waiting period, typically six months to a year, before allowing new hires to join the company retirement program. But that doesn't mean you have to put your saving strategy on hold.

If you already have a 401(k), your former employer may offer to send you a check for the sum of your savings. Banish thoughts of buying a new car or paying off debt, said financial planner Joe Birkofer of Houston-based Legacy Asset Management.

Too often those checks end up paying for other expenses, wiping out the precious time you spent saving and resetting the clock on your retirement. Then there are the taxes and penalties for cashing out early.

It's similarly unwise to leave the money at your former employer and forget to manage it, said Jamie Cornell, senior vice president of employer marketing for Fidelity Investments.

Don't let the commotion of a new job distract you from making the most of your savings. Roll over your money into an individual retirement account, or open a new IRA if you're just starting out, Cornell said.

Check to see if your company offers a direct debit program that allows you to funnel after-tax money into a personal IRA, he said. Also, many IRA managers will let you set up a direct debit from your bank account.

Ask if you'll be enrolled automatically in the company's plan after the waiting period expires, Cornell said. If not, be sure to sign up.

If you were offered a signing bonus to switch companies, you can use that chunk of change to jump-start an IRA. A Roth IRA is usually the best option, because contributions to traditional IRAs are complicated by previous participation in an employee retirement program, Birkofer said.

Another approach is to set aside money into a savings account during the waiting period, then double up your contributions once you're eligible for the company plan, he said. "Even missing a year can become a $40,000 or $50,000 mistake 20 years down the road," Birkofer said.

Fortunately, companies are revisiting their policies on delayed eligibility.

"We're beginning to see that shorten as employers realize the extreme benefit of time on retirement savings," Cornell said.