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401(k) Confusion Got You Down? Contact an Investment Advisor


b2ap3_thumbnail_401K-1.jpgFeeling restless at work? You’re not alone. According to the U.S. Bureau of Labor Statistics, workers are switching jobs every 4.4 years on average. USA Today recently highlighted the situation, stating that for people who take advantage of their company’s 401(k), there may be as many as six different options when a job switch approaches. The situation of 401(k) confusion looks to continue, as the next generation of workers – the Millennials – are predicted to spend three years or less at a job.

You likely already know you have options when it comes to the money you have in your 401(k). Some employers will let you leave it there without making future contributions. Rather than having multiple accounts, you can take that money and transfer it to your plan at your new place of employment. Few
investment advisors would suggest that you cash out your 401(k) due to tax implications, but that is also an option (that may also come with penalties). Finally, you can convert to an in-plan Roth or make a total Roth conversion.

If you make 401(k) contributions automatically through your paycheck, the decision on what you will do with your account when you quit or retire will be a very important decision. For instance, for the person who is under the age of 59.5 and decides to pull out of their 401(k), they will incur a 10 percent tax penalty. Worse yet, the loss on potential gains should that money have been left in the market could be thousands of dollars.

One of the big advantages of leaving your money in the company plan is that the Employee Retirement Income Security Act of 1974 protects it. When you move that money to an IRA, it’s only protected at the state level with creditor protection. This can differ per state, so ask your financial advisor what’s going on in your state.

There are also advantages of rolling your money over to an IRA. For instance, you generally have more choices for investments in an IRA, and there may be more protections for them than what you’ll find in a 401(k) during bad economic times, such as the recession in 2008.  Also, an IRA allows for simplification through consolidation.  If you have multiple plans from past employers, you may roll them all over to one IRA account instead of having accounts with multiple custodians. 

When it comes to estate planning, IRAs are easier to manage because you can actually create different accounts, including “stretch” IRAs. You have more flexibility with an IRA in that you can take distributions whenever you want. You can gain some added benefits with Roth IRA than you can with the Roth 401(k), which is another topic you should discuss with your financial advisor. 

The best-laid plans are often made constructed with the guidance of a professional advisor.
Family Investment Center has advisors with years of experience in advising clients about 401(k)s and IRAs. To end the confusion or speculation about what you need to do when you leave a job, contact the professionals at the Family Investment Center today.

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