InSight

Retirement Account Rollovers

Financial Planning Dentist

Land a new job? Don't forget about your 401k!

What’s great about a 401(k) retirement savings plan is that your assets are often portable when you leave a job. But what should you do with them? Rolling over your 401(k) to an IRA (Individual Retirement Account) or Roth IRA is one way to go, but you should consider your options before making a decision.  This information should help you decide.

Option 1 - Leave your money in your former employer’s plan, if your former employer permits it:

                                 Benefits:

  • Any earnings remain tax-deferred until you withdraw them. 
  • Under federal law, assets in a 401(k) are typically protected from claims by creditors. 
  • Required minimum distributions (RMDs) may be delayed beyond age 73 if you’re still working.

                          Things to Consider:

  • You can no longer contribute to a former employer’s 401(k).
  • Managing savings left in multiple plans can be complicated.
  • Fees once paid by the employer for account management, hosting, management, etc. can now be assessed directly from the account. 
  • Inaccessibility – You may need to contact the former plan administrator or employer to manage funds and make requests. 
  • Must conform to the investment standards and practices of the existing plan and any future changes the plan makes.

Option 2 - Roll over your money to a new 401(k) plan:

                                 Benefits:

  • The new 401(k) may have lower or higher administrative and/or investment fees and expenses than your former employer’s 401(k) or an IRA. Any earnings accrue tax-deferred.
  • This keeps the Rule of 55 intact (last employer).

                          Things to Consider:

  • Rolling over company stock may have negative tax implications due to the potential loss of Net Unrealized Appreciation (NUA).

Option 3 - Roll over your 401(k) to a Traditional IRA:

                                 Benefits:

  • Your money can continue to grow tax-deferred.
  • You have access to investment choices that are not available in your former employer’s 401(k) or a new employer’s plan.
  • You can consolidate multiple retirement accounts into a single Traditional or Rollover IRA to simplify management.

                          Things to Consider:

  • Whether or not you’re still working at age 73, RMDs are required from Traditional IRAs.
  • Rolling over company stock may have negative tax implications due to the potential loss of Net Unrealized Appreciation (NUA)
  • Some IRA providers have annual fees for management and holding assets.

Option 4 - Roll over your Roth 401(k) to a Roth IRA:

                                 Benefits:

  • You can likely roll Roth 401(k) contributions and earnings directly into a Roth IRA tax-free.
  • You can consolidate multiple retirement accounts into a single Roth IRA to simplify management.

                          Things to Consider:

  • Any Traditional 401(k) assets that are rolled into a Roth IRA are subject to taxes at the time of conversion.
  • Some investments offered in a 401(k) plan may not be offered in a Roth IRA.

Option 5 - Take a cash distribution:

                                 Benefits:

  • If you find yourself in extraordinary need, having cash could be helpful.

                          Things to Consider:

  • Taxes and penalties may be substantial.
  • Withdrawals before age 59½ may be subject to a 10% early withdrawal penalty and will be taxed as ordinary income.
  • Cannot “make up” those contribution years.

Reach out to us for assistance in selecting the best option for your retirement plan- everyone's situation is unique!

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