Retirement Specialist With Over 40 Years Of Retirement Planning Experience
Roll over to your new employer’s 401(k) plan or stay in your current plan?
Many employer-sponsored plans have loan provisions. If you roll over your retirement funds to a new employer’s plan that permits loans, you may be able to borrow up to 50% of the amount you roll over if you need the money. You can’t borrow from an IRA — you can only access the money in an IRA by taking a distribution, which may be subject to income tax and penalties. (You can give yourself a short-term loan from an IRA by taking a distribution, and then rolling the dollars back to an IRA within 60 days; however, this move is permitted only once in any 12-month time period.)
Employer retirement plans generally provide greater creditor protection than IRAs. Most 401(k) plans receive unlimited protection from your creditors under federal law. Your creditors (with certain exceptions) cannot attach your plan funds to satisfy any of your debts and obligations, regardless of whether you’ve declared bankruptcy. In contrast, any amounts you roll over to a traditional or Roth IRA are generally protected under federal law only if you declare bankruptcy. Any creditor protection your IRA may receive in cases outside of bankruptcy will generally depend on the laws of your particular state. If you are concerned about asset protection, be sure to seek the assistance of a qualified professional.
You may be able to postpone required minimum distributions. For traditional IRAs, these distributions must begin by April 1 following the year you reach age 73 (for those who reach age 72 after December 31, 2022). However, if you work past that age and are still participating in your employer’s 401(k) plan, you can delay your first distribution from that plan until April 1 following the year of your retirement. (You also must own no more than 5% of the company.)
If your distribution includes Roth 401(k) contributions and earnings, you can roll those amounts over to either a Roth IRA or your new employer’s Roth 401(k) plan (if it accepts rollovers). If you roll the funds over to a Roth IRA, the Roth IRA holding period will determine when you can begin receiving tax-free qualified distributions from the IRA. So if you’re establishing a Roth IRA for the first time, your Roth 401(k) dollars will be subject to a brand new five-year holding period. On the other hand, if you roll the dollars over to your new employer’s Roth 401 (k) plan, your existing five-year holding period will carry over to the new plan. This may enable you to receive tax-free qualified distributions sooner.
401K Questions To Ask
When evaluating whether to initiate a rollover always be sure to
(1) ask about possible surrender charges that may be imposed by your employer plan or new surrender charges that your IRA may impose,
(2) compare investment fees and expenses charged by your IRA (and investment funds) with those charged by your employer plan (if any), and
(3) understand any accumulated rights or guarantees that you may be giving up by transferring funds out of your employer plan.
Now, remember, this information is not intended as tax, legal, investment, or retirement advice or recommendations. Every situation is unique & requires a complete evaluation. Contact me today for a free, no-obligation consultation so I can review your entire 401(k) history for a complete retirement strategy.
Schedule a no-obligation consultation with me today.