KNOW YOUR OPTIONS
September 1, 2017 | View PDF
You’ve been working the same job for years and dutifully contributing to your 401k and may be receiving matches. You’ve built up quite a nest egg. Then one day you leave for a new job with benefits that include a 401k. Now you are faced with a dilemma of what to do with your 401k assets at your old job. Before you make any hasty decisions, please sit down with an advisor and learn what your options are and how each could affect your retirement going forward.
One option may be to leave your money right where it is. The old company may not require you to move it out and you may be happy with how it is currently invested. If that is even allowed, understand that you may no longer be able to contribute to that plan and therefore you will not be receiving any matches. You also are still subject to the rules of that plan for that money. You’ll be restricted to the investment options in that plan for that money and you will have no control over the fees within that plan.
If you don’t leave it where it is at, then where else can you put it? The next option would be to roll it over into the 401k plan at your new job. This is pretty common. There is no tax impact if the transfer is handled properly. Keep in mind, that even if you are receiving matches at your new job, you won’t receive any matches on the money that is rolled over. Only on new payroll contributions. It can be invested right along with any new contributions and matches but you will be subject to the new plan’s rules and fees and will be limited to the plan’s investment options.
The third option is You can choose to take it all out in one lump sum to spend it how you feel like you need to spend it but keep in mind that there are tax consequences and possible penalties associated with any withdrawal made prior to age 59 ½. You see, your money is growing tax deferred which means that as long as it is in a qualified retirement account, the principle and any interest you earn is not taxed until you withdraw the money. Once you withdraw it, it is no longer qualified and the IRS wants their cut.
Another option is to roll it over into a Traditional IRA account. As long as it is rolled from one qualified retirement account to another within a given timeframe, it is typically not a taxable event and therefore you will not owe any taxes or penalties. Keep in mind that similar to a 401k, premature withdrawals from an IRA may result in taxes and penalties. If you set up an IRA account with an Advisor like myself, who is fully registered, then you may have a wider variety of investment options to choose from and your retirement assets may be consolidated into one plan. Fees and expenses will likely increase should you decide to move from an employer-sponsored plan to an IRA.
Everyone’s situation and circumstances are different. That is why it is so very important to educate yourself and assess your specific situation. The information that I have provided here should be enough to make you think about what to do before making a major decision about your 401k plan. Just remember that no matter what you do, this is your money for your retirement and if you know your options then you can make the best decision for you and your retirement.
Buddy Hicks is a Financial Advisor with Wealth Management Group LLC an affiliate firm of Securian Financial Services and has over 18 years of experience in the financial services business. He is Life and Health Insurance licensed and FINRA registered with his Series 7 and Series 66 which allows him to be an Investment Advisor Representative and Registered Representative of and offer securities and investment advisory services through Securian Financial Services Inc, member FINRA / SIPC. He is an Alumnus of Troy University with a Bachelor’s Degree in Business/Finance. He takes a process approach with all of his clients to help determine their goals and then works with them to put a strategy in place to help reach those goals. An area of importance of Buddy’s is his ability to intuitively listen to his clients so that he can fully understand their current situation and what their future needs might be.
Investments will fluctuate and when redeemed may be worth more or less than when originally invested.