written by:

John Shrewsbury
Owner | Financial Advisor

Retirement can be confusing...

Do you have an old 401(k) sitting around from a previous job? If so, you have a few options to consider. You could cash out your account, but if you don’t put the cash back into an Individual Retirement Account (IRA) or other qualified account within 60 days, you’ll owe income taxes (and possibly penalties) on your withdrawal.

If your current employer permits rollovers into its retirement plan, you may also be able to move your savings over to a new 401(k) and consolidate your investments. A third option is to rollover the 401(k) assets into an IRA. By moving the assets directly to a new trustee, you won’t be subject to any withdrawal penalties. Depending on the investments you hold within the account and your overall financial strategies, you may be able to transfer some or all of your account directly to an IRA without liquidating the assets.

Why might a rollover be a good idea?

YOU CAN GET ACCESS TO A GREATER NUMBER OF INVESTMENT OPTIONS.

401(k)s and other workplace retirement plans are often limited in the number and type of investment options they offer. IRAs can hold nearly any type of investment, giving you much more flexibility in your investment strategies.

 

IRAS GIVE YOU MORE CONTROL.

Now that you’re no longer an employee, you may not be able to make changes to your investments, robbing you of the ability to adjust your allocations to fit your current circumstances and long-term goals. You also may not be advised of important changes to 401(k) fees and investment options at the old company.

 

QUESTIONS YOU SHOULD ASK BEFORE ROLLING OVER A 401(K)

WHAT ARE ALL THE FEES ASSOCIATED WITH MY ACCOUNT?

DO I HAVE ANY SPECIAL INVESTMENT SITUATIONS?

DO I HAVE FULL CONTROL OVER HOW MY ASSETS ARE INVESTED?

DO I REGULARLY REVIEW MY INVESTMENTS AND MAKE NECESSARY CHANGES?

 

IT SIMPLIFIES YOUR FINANCIAL LIFE.

One of the best arguments in favor of rolling over the assets is that investors tend to lose track of accounts that aren’t right in front of them. A single IRA makes it much simpler to review and make changes to your investments. However, rolling over an old 401(k) isn’t always your best option. Depending on your personal circumstances, it can sometimes be a better idea to leave your old workplace account exactly where it is if:

YOUR 401(K) OFFERS LOWER FEES.

Though you don’t have the right to make additional contributions, you may still have the same investment options and fee structures of current employees. Ask a financial professional to help you review the fees of your 401(k) and compare it to an equivalent IRA.

YOU OWN COMPANY STOCK.

Company stock can qualify for favorable tax treatment if certain requirements are met. If you rolled over your company stock into an IRA, you might end up paying much more in income taxes down the line. Keep in mind, however, that too much exposure to a single investment is very risky. If you’re in this situation, we recommend consulting a financial professional who understands your personal circumstances and can advise you on the special tax issues around company stock.

YOU NEED TO BORROW MONEY.

If you find yourself suddenly in need of cash, some 401(k) sponsors will allow you to borrow from your plan assets. Since taking money from your retirement accounts can harm your long-term financial goals, we rarely recommend doing so. However, the convenience of being able to borrow from yourself instead of a lender can sometimes outweigh the disadvantages. If you’re considering taking a loan from your 401(k), talk to a professional who can help you understand all of the repayment details. Ultimately, the decision of whether to rollover the 401(k) depends on the specifics of your financial situation. If you’ve separated from your employer and have old workplace accounts sitting around, it’s best to come speak to us or another financial professional before making any moves. We can take a look at your overall picture and help you identify the solution that’s right

 

In conclusion, investors should carefully consider all choices available including various factors such as investment options, services offered, withdrawal rules, required minimum distributions, legal aspects and any employer stock.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.