Self- Directed IRAs and 401k Rollovers

IRAs & 401k Rollovers

In our changing economy, many people have either lost their job or left their job and moved on to another job. If you are one of those people or know someone who is, what you do with your 401k or other employee sponsored retirement plan may have an impact on your future financial security, and how healthy your standard of living during retirement will be. Whether you are planning to retire a few years from now or a few decades from now, where you put those funds are very important.

OPTIONS for Your Retirement Plan When You Leave A Job

There are 3 basic options for your retirement plan money when you leave a job:

  1. You can take a lump-sum distribution
  2. You can leave your funds in your past employer’s plan – Or –
  3. You can roll your funds into an Individual Retirement Account, or IRA

OPTION 1 – Take a Lump Sum Distribution

This can be a very tempting option for some people as it is easy to justify using the cash for various reasons, but let’s look at the consequences of this option:

  • · Loss of income tax deferral – you will have to pay taxes on that money
  • · 20% mandatory federal income tax withholding
  • · 10% premature distribution penalty (if you are under age 59 ½)
  • · State and Local taxed (depending on where you live)
  • · Starting over – or playing catch up – with saving for retirement

OPTION 2 – Leave the Funds In An Employer Sponsored Plan

The funds could stay in your past employer’s plan or, if you are changing jobs, they could rollover to your new employer sponsored plan, however:

  • · You will be letting someone else control your allocation choices
  • · Your plan will be under the guidelines of the employer’s plan
  • · Plan guidelines will restrict access to the funds if needed
  • · 20% mandatory tax withholding if funds are distributed

OPTION 3 – Roll Over Your Funds Into An IRA

The rollover IRA option can be an excellent strategy, enabling continued tax-deferred growth and increased control and flexibility over your retirement funds when you leave a job. There are 2 ways of doing an IRA rollover:

  1. 1. A direct rollover (when your former employer direct deposits the funds into your new IRA), or
  2. 2. an indirect rollover (when your former employer issued a check payable to you, and you deposit the check into your new IRA within 60 days of receiving the check)

The Benefits of A Rollover IRA

  • · Continued Tax-Deferred Growth Potential
  • · Flexibility to Select Your Own Allocation Strategy
  • · NO Mandatory 20% Federal Tax Withholding (as long as funds are deposited within 60 days)
  • · NO Mandatory 20% withholding when assets are distributed from your IRA (although taxable distributions must be included in your taxable income for the year, and may be subject to the 10% premature distribution penalty if you withdraw the funds from your IRA before age 59 ½)
  • · Easier money management – you can consolidate your funds from different past employers into one single IRA for easier management of your retirement funds
  • · A Rollover IRA can give greater control options, both while you are living and for your beneficiaries after your death – control over how your remaining assets are distributed

For most people, the control and flexibility that a rollover IRA provides is the best option for their retirement savings after leaving a job. By rolling over your employer sponsored plan into an IRA, you are no longer limited to the allocation options selected by the employer’s plan. You can decide which options are the best fit for you, instead of your former employer.

Why You Should Get Your IRA Advice From JFG

At Johnson Financial Group, we are IRA experts. From traditional IRAs to Roth IRAs to rollover IRAs, we take pride in the fact that none of our clients have ever lost a penny in one of our Individual Retirement Accounts. We will work with you to determine the proper accumulation vehicle for your IRA, given your particular retirement timeline, level of return that you would like to achieve, and the level of risk with which you are comfortable.

Not only that, but we have some exclusive products that are not available to every advisor out there, which can provide tremendous growth with minimal or no risk. Give us a call at 443-807-7311 and let us know what your situation is. Or complete this information request and we will contact you soon.

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