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Consider an account rollover

Four options to manage existing retirement accounts

If you’ve changed jobs, you may have multiple retirement accounts in multiple locations — making it challenging to manage your investments and determine how much you need to save.

You basically have four options as you decide how best to manage your old 401(k) accounts. And there are pros and cons to each option you need to think about:

  1. Roll it over to your current employer’s plan
  2. Roll it over to an IRA
  3. Take your money out as cash
  4. Keep your money where it is

Is an account rollover right for you?

Give us a call and we can get you started.

1-888-900-1953

Learn more about each option

Roll it over – to your current employer’s plan

Pros:

  • No immediate taxes (pay when you take it out)
  • Continued tax-deferred growth (depending on plan type)
  • Provides federal bankruptcy protection
  • Keeps retirement dollars together in a single plan
  • Your employer evaluates the investment options

Cons:

  • Your current retirement plan may not allow rollovers
  • You may not have access to the same investment options
  • Your balance will be out of the market for a period (missing out on potential growth)

Roll it over – to an IRA

Pros:

  • No immediate taxes (pay when you take it out) 
  • Continued tax-deferred growth
  • You can roll your money to another plan later
  • Offers a variety of investment option choices

Cons: 

  • May have higher fees or sales charges/commissions
  • Your balance will be out of the market for a period (missing out on potential growth)
  • You need to carefully review IRA options (to ensure investments align with your goals)

Electing the cash option is available, learn more below. 


Cash – take your money out

Pros:

  • You receive payment for your entire benefit amount and can spend it as you like

Cons:

  • You pay taxes on the taxable amount (20% withheld immediately)
  • You may be subject to a 10 percent IRS penalty, plus applicable income, state and local taxes (if you’re under age 59½)
  • You lose tax-deferred status on your money
  • You need to evaluate the impact on your future retirement

Staying out and leaving assets where they currently are is another option. 


Stay put – keep your money where it is

Pros:

  • No extra work for you 
  • No immediate taxes (pay when you take it out) 
  • You know your plan, investment options, etc. 
  • Continued tax-deferred growth 
  • Provides federal bankruptcy protection 
  • Your employer evaluates the investment options  
  • You can move your money in the future 
  • Potentially lower investment management fees (due to group pricing) 
  • Your account balance may be paid in installments (if plan allows)

Cons:

  • Your account balance usually must be greater than $1,000 
  • You’re subject to current plans rules, future changes, fees and expenses 
  • Your retirement assets may be in multiple locations (making them harder to manage)
  • Your family may not know about other retirement accounts

A tale of two savers

Jennifer, age 35, is leaving her job with $10,000 in her retirement plan. Although she’s tempted to take the money in cash and spend it, she decides to continue saving and investing for retirement. She leaves the entire amount in the plan — paying no current taxes.

Steve, age 35, also decides to hit the road. He too has $10,000 in his retirement account, but he decides to take the cash payout, pay the taxes and make a long awaited entertainment purchase — a costly decision that leaves him with only $6,500 to make his purchase.

  Jennifer leaves the $10,000 in her plan Steve wants the cash payout
Current federal income taxes owed* 0 $2,500
IRS 10 percent early withdrawal penalty 0 $1,000
Remaining amounts to invest/spend $10,000 $6,500

* Assumes 25 percent federal tax bracket and no state taxes. This hypothetical example is for illustrative purposes only.

Keep your dollars growing

Bar chart: Growth of $10,000 or 30 years, could potentially grow to $76,123 with a 7% return rate


The chart above assumes a hypothetical lump-sum deposit of $10,000 growing tax deferred at an 7 percent annual rate of return that is net of fees and expenses and is for illustrative purposes only. Investments will fluctuate and when redeemed, may be worth more or less than originally invested.


What’s your next move?

Get more information about your account balance, investment options and distribution choices. Good sources for information are your statements, the plan’s web site and Summary Plan Description.

Consult with a trusted professional. Your financial and/or tax professional can offer additional assistance to help you evaluate your choices in light of your entire financial picture.

Make your decision and give us a call. We can help you follow through with the appropriate paperwork, unless you want to keep the money in the plan

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You should consider any outstanding loans when making your decision as any unpaid balance may be reported as taxable income. Also, if you have Roth(k) money in your account, your rollover options may be impacted.   

This information is a general discussion of the relevant federal tax laws provided to promote ideas that may benefit a taxpayer. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. Taxpayers should seek the advice of their own advisors regarding any tax and legal issues specific to their situation. 

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