What Do I Do With My IRA When I Quit My Job?

Quitting your job can be a welcome relief -- if you have another position lined up or your own business in place. Attending to your retirement accounts, whether employer-sponsored or IRA -- can be an important part of the transition. Making IRA-related decisions is part of the planning picture.

Earned Income

The IRS requires that IRAs be funded with earned income.If you quit your job to enjoy generous alimony payments, join the military, start a consultancy or pursue your own business, you can keep right on contributing. If you are not receiving alimony, military pay, commissions or other self-employment income, you'll have to stop putting money into your IRA.

Help It Grow

Whether you keep contributing or not, you should still pay adequate attention to your IRA investments, shifting or reallocating them as you see fit. If you are still in your 20s or 30s, you might want to move funds into emerging-market or oil and gas investments. If retirement is nearing, giving less-risky investments more weight is advisable. Make it a practice to check in on your IRA's progress every quarter, half-year or year.

Rollover Employer-Sponsored Plans

An option when you leave an employer is to roll your 401(k), 457(b), or other employer-sponsoered plan into an IRA. Because you did not pay tax on your employer plan contributions, rolling them into a Roth IRA is a taxable event. Moreover, in order to keep track of rollover contributions, it can be a good idea to open a separate account for each rollover. For a Roth especially, this is good practice because withdrawal rules relative to regular contributions as opposed to rollover contributions differ.

Start Taking Distributions

If you have reached the age of 59 1/2 when you separate from your job, you can take money out of your IRA penalty-free. If you own a traditional IRA, you will still have to pay income tax on the money. In the case of a Roth, you can withdraw earnings free of penalty if you have owned the account for at least five years. Rollover contributions to a Roth must also have occurred five years before the distribution date.


About the Author

D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.