What Should You Do With Your Old 401(k) Plan?Submitted by JMB Financial Managers on March 17th, 2020
At some point, whether it's as you retire or after changing jobs, you're going to be faced with a decision. Should you stick with your old employer's 401(k) plan, invest in your new employer's retirement plan, or should you roll it into an IRA?
This can be a confusing decision as there are advantages and disadvantages of each option, but the one thing most people are sure of is that they don't want to cash in their account and face income taxes and other penalties. Today we're going to discuss some of the options available to you.
Advantages of a 401(k) Plan: Staying With Your Old Plan or Joining a New Plan
- Creditors cannot invade a 401(k) plan due to federal law, but the same cannot be said for IRAs, although some states do offer IRAs creditor protection.
- You can begin withdrawing from a 401(k) as early as age 55 without a 10% early withdrawal penalty. Generally, you have to wait until 59 1/2 to withdraw from an IRA penalty-free.
- Conservative investors tend to like the stable-value mutual funds offered in a majority of 401(k) plans for their healthy yields and stable principal.
- Limited investment options may not sound like a benefit but for investors who tend to trade often this may offer them a layer of protection they wouldn't have in an IRA with more investment options.
- You can borrow from a 401(k) account if you're working for the employer.
Advantages of an IRA
- Larger selection of investments. When deciding on rolling over to an IRA or not be sure to compare investment options in an IRA to those in a current or old employer's plan.
- Unlike in a 401(k) plan, your investment options in an IRA are reliable, you don't have to worry about them changing.
- Managing one IRA account is a lot less work than managing multiple 401(k) accounts and running the risk of losing track of them over time.
- Potential tax savings. The ability to designate a younger non-spousal beneficiary which allows you to stretch out the minimum withdrawals over that person's lifetime.
- If it makes financial sense, you can rollover an IRA into a Roth IRA.
Making the Right Choice for Your Financial Situation
You work your whole life for retirement, wouldn’t it be nice if we could help reduce the stress of preparing for it? Let's join forces and create a plan that will give you the ability to focus on the things that mean the most to you. Whether you know what decision you're ready to make or you'd like to discuss your retirement account options further, contact us today to schedule a meeting.
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About the Author
Jack Brkich III, is the president and founder of JMB Financial Managers. A Certified Financial Planner, Jack is a trusted advisor and resource for business owners, individuals, and families. His advice about wealth creation and preservation techniques have appeared in publications including The Los Angeles Times, NASDAQ, Investopedia, and The Wall Street Journal. To learn more visit https://www.jmbfinmgrs.com/.