Many travel nursing companies have 401k plans in place and offer the plan as an employee benefit for their travel nurses. The 401k is a great place to put money aside, and very often, the company may even match the contributions made by the nurse, which makes it even more beneficial.
As a travel nurse, though, there are considerations that should be made before participating in the plan. Make sure to check how the matching works and look into how the vesting schedule is set up. The matching is basically going to show what the company will put into your 401k, and it is normally a percentage of your salary and can depend on what you put in yourself. The vesting schedule will show you how long you have to stay with the employer to keep the money they put into the plan. The vesting schedule often follows a sliding scale where you get to keep a higher percentage of the employer contribution the longer you stay. This is important to look at since travel nurses often change jobs more frequently than regular nurses.
How Do I manage multiple accounts?
As you advance your career and work for different employers you may end up with multiple retirement accounts. This can be difficult to manage and also inefficient. Here are the 4 main options you have to manage your multiple accounts.
Option #1: Cash Out the 401k
You can cash out the account, pay tax and potentially penalty on the distribution and then take that after-tax money and invest it or spend it. This is often not the most efficient or most attractive choice to make especially if you have a good amount of money inside the retirement plan. The cash out will be added to your other regular income (for the year in which you take your cash out), and suddenly you may end up in a higher tax bracket.
Option #2: Transfer to a new 401K
Do a transfer of the money to your new employer’s new plan if the new plan allows for this type of transfer. From a tax perspective, the tax law encourages transfers between companies and these types of plans. As long as you don’t make any withdrawals, you will not owe any current income tax, and all your old plan money can continue to grow until you begin income from this plan in retirement. As a travel nurse, this may not be the best choice as you may switch employer again.
Option #3: Transfer to a Traditional IRA
You can transfer the money directly to a Traditional IRA set up in your name. Again you have to arrange this transfer between the plan you are leaving and your new choice of IRA provider. In this type of case, you do not receive money, and again there is no current income tax concern. This will often make the most sense since an IRA in your own personal account, and it stays with you no matter where you end up working.
Option #4: Transfer to a Roth IRA
You may transfer the plan money into a Roth IRA if you qualify. In a Roth conversion, you will pay current income tax on the amount that you are converting, and then you can qualify for income tax-free distributions later on. This works as well as long as you follow the rules around Roth conversions.
So what is the best option?
It is not possible to say which option is the best. Things such as current liabilities, short-term savings, age, income, and what else is in a place financially will determine the best route. In many circumstances, you will need to do a full financial assessment before making a correct decision. Your financial advisor can help direct you, taking all of these items into consideration.
The CreativeNurse was created to help nurses make educated financial decisions in all areas of their financial life. We have educational seminars, personal planning sessions, and much more to help you make informed financial decisions.
Securities products are offered through Park Avenue Securities LLC (PAS), member FINRA, SIPC. OSJ: 677 ALA MOANA BLVD SUITE 720 HONOLULU, HI 96813, ph# 808.695.2100. PAS is an indirect, wholly-owned subsidiary of The Guardian Life Insurance Company of America® (Guardian), New York, NY. CreativeNurse is not an affiliate or subsidiary of PAS or Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
2016-24404 Exp 6/18