Advising Clients on Retirement Plan Options When They Leave a Job

Advising Clients on Retirement Plan Options When They Leave a Job

When clients leave their jobs, tax preparers need to provide guidance on their retirement plan options. Helping individuals make informed decisions about their retirement savings can significantly impact their financial future. In this blog, we will explore how tax preparers can effectively advise their clients on retirement plan choices when transitioning from one job to another or retiring altogether.

Understand the Client's Current Retirement Plan:

As a tax preparer, begin by understanding the client's existing retirement plan. This includes evaluating the type of plan (e.g., 401(k), 403(b), traditional IRA), determining the vested balance, and assessing any employer matching contributions. Understanding the plan's terms and conditions will enable you to provide accurate advice based on the client's specific circumstances.

Consider Rollover Options:

If your client is leaving their job, they may have the option to roll over their retirement savings into a new plan. Explain the advantages and disadvantages of rolling over funds into a new employer's plan or an Individual Retirement Account (IRA). Factors to consider include investment options, fees, withdrawal penalties, and the ability to consolidate multiple retirement accounts for easier management.

Highlight Direct Rollovers:

Emphasize the benefits of direct rollovers to clients. A direct rollover involves transferring retirement funds from one plan to another without the client personally receiving the money. This option allows them to avoid immediate taxes and penalties, ensuring their retirement savings continue to grow tax-deferred.

Discuss Roth Conversion:

If the client has a traditional retirement account and anticipates being in a lower tax bracket during the transition period, discuss the option of a Roth conversion. A Roth conversion involves moving funds from a traditional account into a Roth IRA, requiring taxes to be paid on the converted amount. Analyze the potential long-term benefits of tax-free withdrawals during retirement, and help the client evaluate whether a Roth conversion aligns with their financial goals.

Explore Retirement Plan Alternatives:

In addition to rollovers and conversions, familiarize clients with alternative retirement plan options. For example, discuss the possibility of leaving funds in the former employer's plan if allowed, especially if the plan offers favorable investment choices and low fees. Alternatively, self-employed clients may benefit from establishing a Simplified Employee Pension (SEP) IRA or a solo 401(k) to continue contributing to their retirement savings.

Provide Tax Implication Insights:

As a tax preparer, educating clients about the tax implications associated with retirement plan decisions is crucial. Explain potential tax liabilities and penalties for early withdrawals, required minimum distributions (RMDs) after reaching a certain age, and how different retirement accounts are treated from a tax perspective. Help clients understand how their choices can impact their current and future tax situations.


Your role extends beyond just filing tax returns. By advising clients on retirement plan options when leaving a job, you contribute to their long-term financial well-being. By understanding their existing retirement plan, exploring rollover and conversion options, discussing alternative retirement plans, and providing insights on tax implications, you empower clients to make informed decisions that align with their retirement goals. Help them navigate this crucial phase and build a solid foundation for their financial future.