If you are laid off from your job or transitioning to a new employer, we recommend one simple tool – opening up an IRA. Each time you leave an employer, you can determine if it makes sense to roll your funds over into an IRA.
There are three primary reasons to consider this:
Open Architecture
If you roll your funds over into an IRA, you can invest in a much wider universe. There is the opportunity to utilize low cost, no cost index funds, individual stocks, or best of breed mutual funds. Do it yourself or work with a wealth manager.
Ease of Record Keeping
If you have multiple stops throughout your career it can be very difficult to keep track of many scattered accounts and monitor the investments in each. Other details, such as updating the beneficiaries, can be made more complicated if you own several accounts. If something unexpected should happen to you, it is also difficult for your family members to track an array of retirement accounts. Consolidating the 401(k)s into an IRA allows for a much more simplistic process.
Income Strategy
401(k)s are always designed for accumulation, but not always for income – Most 401k’s do not currently offer a wide array of options for generating a robust income strategy in retirement. It wasn’t the intention of their design. They were typically designed for the employed to save funds tax deferred for future use. When the future becomes the present – you may want a more specific withdrawal game plan.
A couple important notes of caution.
If you quit or are laid off between the ages of 55 and 59.5, there is a provision that allows you to pull from your current 401(k) plan without penalty – so you don’t want to immediately roll the current plan into an IRA until you have assessed this need fully. Second, 401(k) plans can sometimes – apples to apples – have lower fees. This should at least be taken into consideration. It really depends on what you plan to own going forward. Lastly – 401(k) plans tend to have greater bankruptcy/credit protection – whereas IRA laws are determined at the state level. So, if you anticipate any legal actions in your near future – you may want to weigh this heavily.
Overall, when transitioning from an employer – whether as a result of switching jobs, a layoff, or retirement – we encourage you to move your 401(k) funds and/or consult with a financial advisor.
Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
Chris Kampitsis is a registered representative of and offer securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC. www.SIPC.org 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000 CRN202211-274242