401(k) Rollover Options
EMPLOYER SPONSORED PLAN OPTIONS
OPTION 1 - LEAVE IT IN FORMER EMPLOYERS PLAN
Leaving money in your current 401(k) may be an option, depending on the terms of the employers plan. Some of the factors that may affect your retirement account are:
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Ability to Add Money: Once you leave your employer, you generally won't be able to add money to your plan.
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Investment Choices: 401(k) plans typically have a limited number of investment options compared to an IRA.
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Employer Plan Changes: Your employer maintains the plan and may change investments and plan providers at any time, without your consent.
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Fees and Expenses: While your money is still invested in the plan, the 401(k) plan still charges fees and expenses. These often include administrative fees, investment-related expenses, and distribution fees.
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Penalty-free Distributions: Generally, you can take money from your plan without tax penalties at age 55, if you leave your employer in the calendar year you turn 55 or older. You will still be liable for taxes on former pre-tax contributions.
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Required Minimum Distributions: Generally, you must take minimum distributions from your former employer's plan beginning at age 72.
OPTION 2 - MOVE IT TO NEW EMPLOYERS PLAN
Moving money to your new employer’s 401(k) may be an option, depending on whether your current employer has a 401(k) plan and the terms of the plan.
While it is a good idea to participate in your new employers retirement plan, the benefits of the plan may have little impact on the assets that will be rolled over to the new employer, outside of the fact that these previous plan assets will usually be invested as well. Keep in mind, that when employers offer matching contributions in retirement plans, this only covers new plan contributions.
And like any new plan opportunities, your assets will be held in the plan under the terms of the current plan document and be subject to a usually limited set of investment choices versus a Rollover IRA.
OPTION 3 - ROLL OVER YOUR 401K TO A TRADITIONAL OR ROTH IRA
When you decide to roll your money over to an IRA, you have the ability to consolidate former plan assets in one account. This is particularly convenient as studies suggest that many people may have as many as 12 employers in their lifetime. Consolidating these former retirement accounts can make planning and managing your retirement objectives a little easier.
One of the most important benefits you will experience as an owner of an IRA is that your retirement assets are no longer held at the mercy of your companies plan document (rules). These rules can stipulate your ability to draw on these funds for education, loans, or a new home, while the IRA belongs to you and with proper planning can be utilized as a supplement no matter when you leave your employer. With consequences only subject to IRS guidelines surrounding the ownership of IRA's.
As an owner of an IRA or Roth IRA, you will have a much broader range of investments than employer plans that can be finely tailored to your needs and risk tolerance.
In addition, as long as you have any earned income, you will also have the ability to contribute to your IRA subject to annual IRS guidelines. These contributions may qualify you for additional tax incentives.
OPTION 4 - CASHING OUT YOUR 401K
Cashing out or withdrawing your money from your 401(k) is an option.
While this may not be ideal because of the ramifications that can come with early withdrawal or premature withdrawal as you may not have accumulated enough money to supplement your retirement comfortably.
Taking a distribution from your retirement plan generally means you'll have to pay taxes on the withdrawal, and there is typically an additional 10% tax penalty if you are under age 59½, unless you left your employer in the calendar year you turned age 55 or older.
This choice is very questionable as in many instances it takes several years to accumulate money in a retirement plan, and in one fell swoop, it can all be spent in a matter of a short time.
GETTING HELP WITH YOUR RETIREMENT PLAN
When you leave an employer and you have invested in a employer sponsored retirement plan. Making the choice about how you will continue to prepare for retirement is not a decision you want to take without understanding your choices clearly.
To assist you in discovering the right choice; we suggest you discuss your situation with a financial advisor. An advisor will take the time to understand your situation, answer any questions you have, and help you develop a strategy that suits your short and long term goals including your retirement needs.