Do you have multiple 401(k)s? If you left your money in a former employer’s 401(k), you may want to reconsider as you near retirement. According to the Bureau of Labor Statics, Baby Boomers have held an average of 12 jobs by the time they turn 50. When you leave a job, the money you contribute to your 401(k) is still yours, and you may also be able to keep your employer’s contributions depending on your vesting schedule. There are a few options for your old 401(k)s: You can cash out of the plan, leave the money in the plan, rollover the money into your current employer’s plan, or roll it over to an IRA. All of these options have different advantages, so don’t forget about your old 401(k)s as you approach retirement.
Cashing out of an old 401(k) plan is usually not the best option because the funds are treated as withdrawals and are taxed as income. You should always consider your tax burden in retirement. And, if you cash out before you are 59½, you can get hit with an early withdrawal penalty. So, it may be a better idea to leave your money in the old 401(k) and continue to reap the reward of tax-deferred growth. However, there may be a better option.
Investment options are limited within a 401(k) plan to those provided by your plan custodian and employer. And, you might not be aware of the fees you are paying: Employer-sponsored 401(k) plans tend to have higher administrative fees than IRAs. Combine this with the fact that you’re paying fees for each retirement account you have, and rolling over your old 401(k)s into an IRA seems like a good option.
Funds rolled over into an IRA are not treated at withdrawals and are not subject to income tax. You can continue to enjoy tax-deferred growth by rolling over funds directly into an IRA within 60 days of when they are taken from an old account. IRAs tend to have a broader array of investment options and lower administrative fees. With an IRA, you can invest in practically any stock, mutual fund, bond, real estate or security. And, instead of keeping track of multiple former workplace retirement accounts, you can simplify your finances by rolling over your plans into one IRA and reviewing a single account statement.
The professionals at O’Donnell Financial Group can help you make the most of what you’ve saved by figuring out a personalized plan for your old 401(k)s. Whether you’re looking to simplify your finances or reduce fees, we can help you. Click here to schedule your no cost, no obligation financial review today to take the first step towards a comprehensive retirement plan.
