IRA and Options for Old Retirement Accounts

What should I do with my old 401k?

When you leave your job, your employer-sponsored retirement plan does not automatically follow you. You will have to decide what to do with the money you have saved in your employer-sponsored retirement plan.  At Old Dominion Investment & Retirement Advisors, we are frequently asked about 401k rollovers, and how to consolidate old retirement accounts, as people want to know what will be best for their investments.   Before transferring your old retirement account(s) to your new employer’s plan, it is important that you understand all your options for these accounts, so that you can make the best choice for your financial future.  

Option 1:  Cash It Out

Taking the cash from your employer-sponsored retirement plan immediately may be a tempting choice for your retirement assets.  With an indirect rollover, your former employer will send you a check for the balance of your account. However, as a result, you are now ultimately responsible for getting your funds to the right place. You will have 60 days to complete the rollover process of moving these assets to your new employer's plan or an IRA.

If you do not rollover your funds into another qualified plan within this 60-day window, you will subsequently owe income taxes on the amount you failed to roll over.  Your former employer will withhold 20% from your distribution for federal income taxes.  Additionally, if you are under 59½, you will face an early withdrawal penalty.  Depending on your income tax bracket, taking the cash may mean reducing your retirement savings plan by nearly a third! You will also have to wait until the following year to file your income tax return and get the 20% withheld back.

This option can get messy, so call us before you decided that this is the right choice for you!

Option 2: Maintain the Status Quo

Many companies allow you to keep your 401(k) savings in their plans after you leave your job.  This option might seem attractive because it does not require you to take any action.  If you are considering maintaining your retirement account with your former employer, you will want to consider the fees and investment options you have on this retirement account.  Some retirement plans have low fees while others are sky-high.  You may also find you have better investment choices elsewhere.  Something else to keep in mind is that if your account balance is not large enough, you might be forced out of the plan.  Lastly, while your funds already invested in this account will continue to grow, you will not be able to make any further contributions to it.

If you like the investment options in your former employer’s retirement plan, the plan offers low fees, or you just aren’t sure what to do with it yet, you can consider leaving your funds in the old 401K until you are ready to move them. 

Option 3: Transfer Funds from Your Old Plan to Your New Employer's Plan

The fewer retirement accounts to keep track of, the easier your financial life will be.   Your new employer may also have better and lower cost investment options in their plan.

Option 4: Rollover Your 401k to an Individual Retirement Account (IRA)

There are several reasons that opening an IRA (Individual Retirement Arrangement) might be the best option for you:

  • IRAs typically offer more investment options and lower fees than employer 401k plans do with the added benefit of being able to directly work with a financial planner
  • Unlike a 401k, you can open an IRA on your own, you do not need an employer to open an IRA. 
  • Most employers have a waiting period (typically a year) for new employees to participate in their retirement plan.  With IRAs, there is no waiting period, and you can start investing in your financial future immediately
  • There are no limits on how many 401k plans you can rollover into a single IRA.  If you have 401ks from multiple former employers, you can consolidate all of them into one account.  Combining these multiple accounts into one location may reduce your overall fees and simplify your recordkeeping.

Are you about to retire?  You may also want to consider a Rollover IRA.  Here is why:

  • Your earnings will continue to have the potential to grow, tax deferred.
  • You may reduce the costs of your 401K.
  • You may get more individualized guidance and support as well as many investment options not available in a 401K plan.
  • Additional annual or rollover contributions are allowed.
  • You may convert your Rollover IRA to a Roth IRA, if eligible.
  • You may have additional beneficiary options when you rollover your 401K to a Rollover IRA.
  • You maintain better control and can simplify your record keeping.

 

Let Old Dominion Investment & Retirement Advisors do the legwork for you!

We are here to help. We have over 25 years of experience with 401K Rollovers and IRA Rollovers.

Whether you’re changing jobs or retiring, if you are thinking of consolidating your old 401K and other retirement accounts, we can help you consider all of your options and help you decide which is right for you.  If rolling over your 401K or IRA is what you decide is for you, we can expertly move your money from your current plan(s) to a Rollover IRA – so you don’t have to handle the money or worry about withdrawal taxes or penalties.

If you live in Richmond, Henrico County, Hanover County, Chesterfield County, Goochland County or Powhatan County, or anywhere else in Virginia, North Carolina or Maryland and would like to learn more about a 401K plan a 401K Rollover setting up an IRA or doing IRA Rollover, call us at (804)741-4972.