Like buying a home or funding higher education, preparing for your golden years is one of the major financial decisions people need to address. Planning to live on personal savings held in a bank account alone as a retirement strategy is possible, but the current personal savings rate for the average American citizen is only 3.8 percent. Receiving Social Security benefits can also be a piece of the retirement puzzle, but one needs to consider if those funds will be sufficient to live with a comfortable level of security. The employer sponsored pension is nearly considered a relic of days gone by for most employees. Today, one of the most compelling benefits an employer can offer is a 401(k) program for their employees.
Working at one employer for several decades is not as common or as reliable of an expectation as it once was. The current statistics show it is quite typical for most people to change careers about five to seven times during their working life. Even if you tend to stay in the same industry for a considerable length of time, there is a strong likelihood of changing employers in that field. Taking advantage of your employer’s 401(k) plan is positive thing; but what happens to that retirement account when a new career opportunity takes you to a different company?
There are three basic options when it comes to handling your 401(k):
Cash it out and take the funds personally.
Leave the account at the company (or plan administrator) used by your former employer.
Roll the funds and assets into an IRA.
Consulting with a financial advisor can help if you find yourself at a crossroads as to which is the most sensible option for your needs and goals. Taking the funds personally can come with taxes and penalties that may far outweigh the immediate gains of having those funds in hand. Maintaining accounts at several custodians may be a way to diversify, but what is the impact of paying fees for each of the custodians? These are only a few considerations a professional can help you navigate.
One option to consider is taking your former 401(k) account and transferring those assets to an account at Equity Trust. When you transfer funds from one financial institution to another, it is generally not a taxable event – provided the tax environments are the same. A financial professional can be a good resource to help you determine whether it would be prudent to convert funds or assets from a traditional tax-deferred environment to the pre-tax environment of a Roth IRA.
gives some interesting aspects to consider when ‘cleaning up’ 401(k) accounts from former employers. We welcome you to reach out to our Client Service team for assistance in transferring funds from any lingering older 401(k) accounts. If you found your investment options limited under your former company’s plan, you might finally free those funds for a wide variety of alternative investment options and take your investing potential to a new level.