A 401(k) Rollover After Retirement Can Be a Good Idea

Retirement Income

A 401(k) Rollover After Retirement Can Be a Good Idea

Posted by COTO Insurance & Financial Services
5 years ago | April 1, 2019

Many people assume that they will contribute to their 401(k) for decades, carry it into retirement, and begin distributions. And for some, that works out just fine. But as with anything else in life, you want to make that decision with full knowledge of the other options available to you, because the cost of missed opportunity can be great.

On that note, some retirees do choose to roll over their 401(k) into an IRA (Individual Retirement Account) when they retire. Why?

Taxes. Your money grew free of income taxes all those years, but you will begin to pay taxes on the funds when you take withdrawals in retirement. Plus, if you’re under age 59 ½ when you retire, you will pay a 10 percent early withdrawal fee as well. A Roth IRA allows for non-taxable withdrawals throughout retirement.

Fees. Administrative fees and maintenance fees often apply to 401(k) accounts. Many of the investment options within the account come with high fees as well. In many cases, IRAs offer lower fee options.

Better control. Many 401(k) accounts impose various restrictions that can limit your investment options. IRAs often allow for more flexibility.

Investing in employer stock can produce uncertainty. Many of those who use 401(k) accounts have invested a significant amount of their retirement funds into employer stock (usually from employer contributions to the account). This can seem like a terrific benefit during your working years, but the future of any company can change. Once you retire, you might not want to be invested there anymore.

Consolidate. If you worked for more than one employer through the years, you might be holding onto several 401(k) accounts. It will be easier to manage your money in retirement if you roll over all accounts into one place (like an IRA).

As with any retirement planning strategy, there is no solution that works perfectly for everyone. Come meet with us to discuss the pros and cons of a 401(k) rollover, and we’ll help you decide if this option is right for you.

949-858-7200 | info@cotoinsurance.com