Some transitions in life, such as retirement or a new job, may cause you to think about your 401(k). You have transfer options for your retirement accounts still at your old employer. A fiduciary financial planner like Shoreline Financial Advisors can help you make the decision that is in your best interest.
As an independent advisor, we will explain the 4 possibilities available including 401(k) transfer options to an IRA Rollover account.
Please watch the video or click on the 4 possible choices in the table below for an explanation of the pros and cons of each choice. We strongly advise against Option 4. Better yet, give us a call at 203-458-6800 to set up a complimentary, no obligation meeting.
Leave a 401(k) behind at an old job? Here are some options:
Rollover your assets into an IRA
There are three primary advantages to a 401(k) rollover into an IRA and it is usually the most beneficial option depending on the 401(k) plans you have access to.
1. Generally, an IRA will have more flexibility with access to thousands of investment choices. Usually, within a 401(k) plan, the investment options are limited. Often, these choices are sufficient for a properly diversified portfolio, but the plan may not have access to the best or lowest cost investment choices.
2. One of the biggest advantages of the IRA rollover is the continued tax deferral. You maintain the tax-deferred treatment that was the benefit of the old workplace retirement plan, but you now have more options.
3. IRAs allow you to simplify and consolidate retirement accounts. To begin with, monitoring a number of old retirement accounts can be complex. Consistently rolling over your plans to a single rollover IRA creates one account to monitor. Finally, selecting investments is simplified.
Leave funds behind in old 401(k)
(If the plan allows) This option may or may not be available depending on the plan. As noted in Option 1, you may have limited options. Additionally, the combination of plan fees and fund expenses make it more beneficial to roll the plan assets into an IRA. You should make a thorough analysis of the plan to make the right choice.
Rollover your assets to your current employer’s plan
(If you have a new job and the plan allows) As with Option 2, this may or may not be available in your new workplace retirement plan. As noted in Option 1, many plans have limited options and the combination of plan fees and fund expenses make it more beneficial to roll the plan assets into an IRA. A thorough analysis of the plan is required to make an appropriate choice.
(Taxes and withdrawal penalties may apply) Cashing out is usually the worst of the options. In addition to getting taxed and a 10% early withdrawal penalty if you are under age 59 ½, the employer is required to withhold 20% for the IRS so you will be unable to withdraw the full amount.
If you do not put the money into a qualified retirement account within 60 days, it is taxed as ordinary income. Furthermore, you no longer take advantage of the tax-deferred investment over time and the money that could have been generated over time.
With our guidance, we can help you experience a seamless transfer.
During the COVID-19 crisis, we continue to operate at our normal hours. We are available to meet by phone or virtually. To learn more about what we can do for you, give us a call at (203) 458-6800.