Life changes, and sometimes those changes make it necessary to resign from your job. What happens to your pension when you do resign depends on several factors, including what type of pension you have. In some cases, all the money remains yours. If your employer contributes to your pension plan, you may get to keep your contributions but forfeit theirs. When you leave, you sometimes have the opportunity to transfer your money into a new pension or retirement account. Other plans force you to leave your pension money where it is and then apply for it at retirement age, just as you would have had you not resigned. Read your plan documents carefully before leaving so you know what to expect.
Are You Vested?
Different employers do things different ways, but the fate of your pension often depends on how long you've been with the company. Generally, an employee who has been with a company less than five years will lose all of their company-paid pension benefits upon resigning. If you've been around longer than that, your pension's fate depends on your employer's vesting schedule.
In a cliff vesting schedule, you are entitled to all of your pension benefits after you've been with the company longer than five years. You will get all of your pension money after that, even if you resign on the first day of your sixth year with the company. Other employers use graded vesting. In graded vesting, you are considered to be 20 percent vested after three years of service. Each year after that, your vestment increases by 20 percent each year. After four years, you are 40 percent vested. At five years, you're 60 percent vested. Under graded vesting, the percentage of your pension that you keep after resigning depends on how long you've been with your employer.
What's Yours is Yours
Regardless of your vestment level, money you contributed to your pension is always yours. No matter when you leave an employer, any money that you placed in your pension fund is yours to keep. Vestment only applies to the portion of your pension plan that your employer pays. Depending on your plan rules and vestment schedule, your employer might take back some or all of the money they contributed to your pension on your behalf. They can not, however, keep any money you contributed.
Getting Your Money
How you get your hands on your pension money when you resign depends on your pension plan. In some instances, you may choose to withdraw your money when you resign and keep the cash. If you do, however, expect a hefty tax bill and possible early withdrawal penalties. You may also have the choice of getting your money right away and rolling it into an IRA or another retirement account. If you do, you won't get taxed right away and can instead keep the money in its tax-deferred state. Both of these options are viable if you have a 401(k) or similar plan. If, however, you have a more traditional pension plan, you may have to wait until you reach retirement age and then file a claim to obtain your pension or start receiving pension payments.
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