The Dallas Fed says 31% of workers are reluctant, for various reasons, to return to their previous jobs. A lot of Americans, especially women, are not returning to the same position they had prior to the start of the pandemic.
These are times of change.
Since the third week of October is Retirement Planning Awareness Week, I thought it would be prudent to talk about retirement plan rollovers in this blog.
My mantra has always been, when I leave a job- I take my jacket, my photos… and my MONEY!
But the decision that is right for me doesn’t mean it will be the right for you- so, let’s talk about what options you have, so you can make the best decision for you!
Option #1: Leave your money in your former employer’s plan, if your former employer permits it.
If you choose to leave your money where it is, you benefit from not having to take any action right away; and your former employer may have advantages like investing tools and guidance that you enjoy. Don’t fret, you still have the option to rollover in the future.
The money will stay in the investment choice you had, and any earnings will remain tax-deferred until you withdraw them. What is nice, is that you may still have access to investment choices, distribution options, and other services and features that are not available with a new 401(k) or an IRA.
One very big benefit is if your former employer’s plan has lower administrative and/or investment fees than the new employer’s 401(k) or an IRA you are looking at. Take the time to investigate the expenses.
Under federal law, assets in a 401(k) are generally protected from creditor claims.
When it comes to distribution, you could potentially be able to take a partial distribution or receive installment payments, delay RMDs (required minimum distributions) beyond age 72 if you are still working, and if you leave your job between ages 55 and 59½ you may be able to take penalty-free withdrawals.
You can no longer contribute to a former employer’s 401(k), thus would open a new account and managing savings left in multiple plans can be complicated.
Your range of investment options and your ability to transfer assets among funds may be limited.
One very big con is if your former employer’s plan has HIGHER administrative and/or investment fees than the new employer’s 401(k) or an IRA you are considering.
If you hold stock in your former employer in the plan, you could potentially have special tax or financial planning needs to consider prior to rolling any money over.
Option #2: Roll over your money to a new 401(k) plan, if this option is available
If you are starting a new job, or a new business, moving your retirement savings to your new employer (or your business’) plan could be an option. A new retirement plan could potentially offer lower expenses, and you could have all your savings in one place.
Rolling over your retirement savings into a new plan, could be prudent if you like the new plan’s features, costs, and investment options.
You may be able to borrow against the new 401(k) account if plan loans are available.
You may have access to investment choices, loans, distribution options, and other services and features in your new 401(k) that are not available in your former employer's 401(k) or an IRA.
There are tens of thousands of investment choices in the market, but you have a limited range of choices in any specific 401(k) offered by your employer.
Fees and expenses could be higher than they were for your previous employer’s 401(k) or an IRA.
Rolling over company stock from your previous employer may have negative tax implications.
Option #3: Roll over your 401(k) to a Traditional IRA
If you're switching jobs or retiring, rolling over your 401(k) to a tax-deferred Traditional IRA may give you more flexibility in managing your savings.
You have access to choose from the plethora of investment choices in the market, that are not available in your former employer’s 401(k) or a new employer’s plan.
You may have the opportunity to consolidate several retirement accounts into a single IRA to simplify management.
Your IRA provider may offer investing tools and guidance not offered by your employers.
Depending on the IRA provider you choose, you may pay annual fees or other fees for maintaining your IRA, or you may face higher investing fees, pricing, and expenses than you would with a 401(k).
You can’t borrow against an IRA like you can with a 401(k).
Your IRA assets are generally only protected from creditors in the case of bankruptcy.
Whether or not you’re still working at age 72, RMDs are required from Traditional IRAs.
Rolling over company stock may have negative tax implications.
Option #4: Roll over your 401(k) to a Roth IRA
You can roll Roth 401(k) contributions and earnings directly into a Roth IRA tax free.2
Any additional contributions and earnings can grow tax free, and you are not required to take RMDs (Required Minimum Distributions).
As mentioned above you may have more investment choices, receive additional services, and are able to consolidate multiple accounts to simplify management.
Unlike with a 401(k), you can’t borrow against a Roth IRA.
Any Traditional 401(k) assets rolled into a Roth IRA are subject to taxes at the time of conversion.
Your IRA assets are protected from creditors only in the case of bankruptcy, whereas it is protected from creditor claims in a 401(k).
You may pay annual fees or other fees for maintaining your Roth IRA at some companies, or you may face higher investing fees, pricing, and expenses than you did with your 401(k).
After reading through your options, I hope this gives you a general idea of what might be beneficial for you. I am always here to talk you through your options, listening to your specific circumstances and giving tailored advice, so if you feel you would like further clarification please schedule a strategy session with me.
 With a tax-deferred investment, your earnings can grow tax-free until you withdraw them. This means that instead of paying taxes on returns as they grow, you pay taxes only at a later date. IRAs and deferred annuities are common tax-deferred investments.  Tax-free withdrawals of earnings are permitted five years after the first contribution that created the account. Once the five-year requirement is met, distributions, if taken, will be free from federal income taxes: (1) after age 59½; (2) on account of disability or death; or (3) to pay up to $10,000 of the expenses of purchasing a first home. Withdrawals that do not meet these qualifications will be subject to ordinary income taxes and a 10% federal tax penalty.