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BOUMAN: What To Do About My Old 401(K)?

on November 2, 2017 - 8:49pm

By BEN BOUMAN
Alpine Financial Partners

Changing jobs can be a tumultuous experience. Even under the best of circumstances, making a career move requires a series of tough decisions, not the least of which is what to do with the funds in your old employer-sponsored retirement plan.

Some people choose to roll over these funds into an Individual Retirement Account, and for good reason. About 42 percent of all retirement assets in the U.S. are held in IRAs, and 85 percent of traditional IRA owners funded all or part of their IRAs with a rollover.

Generally, you have four choices when it comes to handling the money in a former employer’s retirement account.

First, you can cash out of the account. However, if you choose to cash out, you will be required to pay ordinary income tax on the balance plus a 10 percent early withdrawal penalty if you are under age 59.5.

Second, you may be able to leave the funds in your old plan. But some plans have rules and restrictions regarding the money in the account.

Third, you may be able to transfer the funds to your new employer’s plan.  Check with the benefits office as plans vary from employer to employer.

Or fourth, you can roll the money into an IRA. Why do so many people choose an IRA rollover?

Here are a few of the major benefits.

Rollovers may preserve the tax-favored status of your retirement money. As long as your money is moved through a direct “trustee-to trustee” transfer, you can avoid a taxable event.

In a traditional IRA, your retirement savings will have the opportunity to grow tax-deferred until you begin taking distributions in retirement.

An IRA rollover may open up your investment choices. When you stick with your former employer’s retirement plan, you are typically limited to the investments offered by the plan. With an IRA, you may have a much broader range of choices, giving you greater control over how your assets are allocated.

Rollovers can make it easier to stay organized and maintain control. Some people change jobs several times during the course of their careers, leaving a trail of employer-sponsored retirement plans in their wake. By rolling these various accounts into a single IRA, you might make the process of managing the funds, rebalancing your portfolio, and adjusting your asset allocation easier.

An IRA rollover may make sense whether you’re leaving one job for another or retiring altogether. But how your assets should be allocated within the IRA will depend on your time horizon, risk tolerance and financial goals.

Visit my website for more on this topic and others at, http://www.alpinefinancialpartners.com/about.

Distributions from traditional IRAs and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59 percent, may be subject to a 10 percent federal income tax penalty. Generally, once you reach age 70.5, you must begin taking required minimum distributions.

The information in this material is not intended as tax advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a tax professional for specific information regarding your individual situation.

Ben Bouman operates under the DBA Alpine Financial Partners and is a Registered Investment Advisor with Cetera Advisors, LLC.  An independent broker/dealer. Member FINRA/SIPC.


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