It is quite common for people to make contributions into an employer-sponsored 401(k) retirement plan. If the employee stays with that employer for their entire career, then the 401(k) will continue to grow and will be waiting for them when they retire. But we know that many people will have more than one job during their working years and that these 401(k) accounts are often left behind after a job change. For this reason, this type of account is often called a “Stray 401(k)”.
Essentially, these Stray 401(k)s are left in the control of the ex-employer. Regardless of the scenario surrounding the separation of employee and employer, it is a good idea for the employee to take back control over their 401(k). So, what can be done?
How to Rollover your 401(k)
If still working, you can easily move your 401(k) into the financial institution used by your new employer, as long as they offer a 401(k). The new 401(k) plan administrator could help you with this process. But what if the new employer does not offer a 401(k) plan or you are now retired?
In that case, the best option is to rollover the retirement funds into a self-directed IRA plan. This is simply a plan that an employer does not oversee, and you choose how your retirement funds are invested. There are no tax penalties incurred during a rollover and it can be a great opportunity to diversify your funds and select options that protect your nest egg from a volatile stock market or economic swings.
What if I have an IRA I want to move?
We talked about 401(k) plans, but what if you have an IRA that you’d simply like to move from one custodian, or financial institution, to another? This would be called a qualified transfer, as opposed to a rollover. The transfer would be initiated by the company where you are moving your IRA to. It involves the completion and submission of a transfer form by the “new” custodian and then the physical transfer of funds from the existing institution. No tax penalties are incurred during a qualified transfer.
Why choose a Fixed Index Annuity for your rollover or self-directed IRA transfer
Now that we have talked about rollovers and transfers, the next question is where to rollover or transfer your retirement funds to. Remember how in the past we’ve mentioned protecting your nest egg from a volatile stock market? Let’s revisit that topic.
It is important to determine the level of risk that you’d like to carry in your retirement portfolio. If you are young, let’s say in your 20s or 30s, you may be open to carrying more risk as you have plenty of time to make up any losses incurred during market declines. However, if you are of a more mature age, time may not be so much on your side. We at Summerlin Benefits Consulting like to use the “Rule of 100” when determining an appropriate level of risk for each individual. Simply subtract your age from 100 and the resulting number is a good rule of thumb for the amount of risk you can maintain in your portfolio.
If protecting your retirement nest egg from market declines is a primary goal of yours, a Fixed Index Annuity may help you do that. Fixed Index Annuities (FIA’s) are offered by insurance companies. The annuity grows based on a particular market index but is backed by the insurance company so that you never lose money. FIA’s are a good option for rollovers and qualified transfers because, in addition to safety, they offer a reasonable rate of return over time for the purpose of turning on retirement income later in life. Some FIA’s even offer long term care benefits should you need them.
Our team of industry professionals at Summerlin Benefits Consulting is well versed in rollovers and transfers, as well as “Safe Money” vehicles, such as Fixed Index Annuities. If you’d like assistance with a 401(k) or IRA account, or if you simply have questions, please reach out to schedule a no-obligation meeting with us today. We can help you take back control of your retirement savings.
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