If you have left your job or parted ways with your previous employer, you might be wondering what you should do next with your retirement account.
Although you generally can no longer contribute to you old 401(k) or 403(b) plan once you have left that employer, you do have a few options as to what you can do with that old plan.
Should you just leave it there? Cash it out? Roll it over? Determining which option is right for you is an important decision. If you would like to discuss which option may be best for you, let’s talk.
One option is to simply leave the money in your old employer’s retirement plan. This certainly seems like the easiest choice, right? Easy is good, but here is the downside: since you’re no longer employed there, it’s easy to lose touch with what’s going on with the retirement plan.
Your former employer could change investment funds or plan providers, and as a result, their plan may no longer be a good fit with your needs and goals. Plus, it can be difficult to keep track of a bunch of different accounts, web passwords, and maintain up-to-date contact information with several former employers, especially if you’ve moved around a lot.
This can be tempting. We could all make use of a sudden windfall, right. As tempting as it may be to “take the money and run”, this is generally not your best option. Remember, you put that money away for retirement, not to take a vacation next week!
First, by cashing it out, you will lose the opportunity that those savings have to benefit from compound interest in a tax-deferred account.
Secondly, with a Traditional 401(k) plan, you still owe income tax on the amount that you take out. And if that’s not enough of a “haircut” to discourage you, let’s not forget about the IRS 10% early withdrawal penalty if you are under age 591/2. If you are not retiring now, it’s typically not a good idea to cash out your retirement account yet.*
A Rollover IRA is an account that allows you to move funds from your old employer-sponsored retirement plan (401k, 403b, etc) into an IRA. With an IRA rollover, you can preserve the tax-deferred status of your retirement assets, without paying current taxes or early withdrawal penalties.
By doing this, your retirement savings is no longer tied to your former employer, and you will most likely have access to a wider range of investment option. In addition, with me as your Financial Advisor, we can develop an investment strategy that meets your goals, objectives, risk tolerance and time horizon.
If you think this is the best option for you, or would would like to discuss your options further,
Keep up with your financial needs while avoiding common (and expensive) rollover mistakes. We put together this guide to help you potentially save thousands in taxes and fees, tips for speeding up retirement preparations, and critical mistakes to avoid.
Qualified individuals affected by COVID-19 may be able to withdraw up to $100,000 from their eligible retirement plans, including IRAs, between January 1 and December 30, 2020. These coronavirus-related distributions aren't subject to the 10% additional tax that generally applies to distributions made before reaching age 59 and a half, but they are still subject to regular tax. Taxpayers can include coronavirus-related distributions as income on tax returns over a three-year period. They must repay the distribution to a plan or IRA within three years.