Money Matters

by Dave Dupont
Wednesday, May 7, 2014

Understanding rollover options when leaving a job

If you plan to retire or change jobs in the near future, you may face a number of difficult decisions. Among the most important is what to do with the money you’ve saved through your employer’s retirement plan.

As you prepare to make this important decision, your next steps should include understanding the distribution options available to you, their tax implications, and how each could impact your savings and goals. Many people lose valuable tax benefits or suffer tax penalties by delaying or avoiding decisionmaking, so it is important to know your options. 

How much action is required on your part depends on the option you choose, the value of your account, and the protocol of the employer and/or investment firm managing the plan.

Stick with your previous plan

Keeping your investments in your previous employer’s plan may make sense if that plan has a broad range of investment options at good prices. In addition, many employer retirement savings plans offer a variety of tools that can help you figure out whether you’re saving enough for a comfortable retirement and provide assistance for investing your savings. 

Roll investments into your new employer’s plan

If you’re moving to a new job and the company offers a retirement savings plan with a nice variety of investing options at low-to-moderate cost, then simply moving the money from your old employer to your new employer’s plan is probably the best course. That’s especially true if you don’t have a lot of other savings.

Roll into an IRA 

If your new employer’s plan offers less than stellar investment choices, you may want to roll your old 401(k) or 403(b) money into an IRA rollover account. Consolidating into one IRA could lower your fees and make it easier to rebalance your portfolio. To avoid having taxes withheld on this transaction, make certain your previous employer transfers the money directly to an IRA rollover account you’ve already set up.

You will have to roll over into a traditional IRA — one  in which your money grows tax-free but you owe income tax on withdrawals. 

Also, remember that if you don’t roll it over within 60 days, the entire amount will generally be considered taxable income.  

How you handle your distribution can have a major impact on the value of your retirement assets and the future wellbeing of you and your family.  The choice you make today can impact your financial security in your retirement years.  As always, it is wise to consult with your financial advisor before taking final action.  

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