Here is a summary of your four options for this money:

1. Leave the money in the old employer’s plan.  

401(k)s [and 403(b) plans for nonprofits] almost always have limited investment choices and often both investment and advisor expenses. You can access the fee disclosures, but most never do.  If your old plan is under an insurance company, those fees are likely to be higher, as employers typically don’t subsidize fees under these providers.

If you reached age 55 in your last year with the company, you’re eligible to access funds without early withdrawal penalties.  Consider leaving an amount you might need to withdraw before age 59 ½, which is the penalty-free age for IRA’s.

2. Move the balance to a current employer plan.  

This is usually not the most beneficial move, as you are likely to still have double fees and limited investment choices. However, it could enable you to take a loan from the new plan. If this is something that you want to consider, ask your employer for the details. 

3. Take a taxable distribution. 

This option may only net you about 55% after taxes and penalties.  Remember that retirement plan distributions are taxed as ordinary income, which means it is treated the same as payroll earnings for that year.  Unless you need all of it, you’re much better off moving it to an IRA, with the goals of growing it for retirement and the ability to take distributions gradually over years.

4. “Rollover” the money to an Individual Retirement Account (IRA) 

This is usually your best option. It’s not a taxable event; you’re likely to have much broader investment flexibility, and you could have lower overall fees. Like most discount brokerage firms, look for IRA account “custodians” without annual fees or trading commissions.  Plus, if you have multiple former employer plans, you can consolidate them into one or more Rollover IRAs. 

Remember, if you’re between 55 & 59 ½, to leave an amount you might use, as penalties on IRA’s are incurred prior to 59 ½.

Our next blog post further discusses the advantages of rolling the money into an IRA. Want to learn more about your options now? Reach out to us today to discuss your situation.

So, enjoy today and tomorrow, and let us do the worrying!

Contact us to discuss your situation if you’re interested in our time-horizon strategies.