What Should You Do With That Old Retirement Plan?

August 18, 2016

One of the questions I get from time to time on our financial helpline is what someone should do with their retirement plan when they leave a job. They often end up simply leaving the plan there, but that’s not always the best choice. Let’s look at the options:

Leave the money there. This is typically allowed as long as you have at least $5k in the plan. If you’re retired, you may be able to take periodic withdrawals. It’s the simplest choice because it requires no action from you.

Some good reasons to leave the money there are because you want to have access to a unique investment in the plan or you’d like to pay a lower tax on the appreciation of any employer stock in the plan when you eventually withdraw it. Otherwise, you’re probably better off rolling into another retirement plan to consolidate your accounts and provide you with more investment options. You’ll also have to take a required minimum distribution from each 401(k) and 403(b) you have at age 70 1/2 (unless you’re still working there).

Take the money and run. You can have them send you a check for the balance. However, you’ll have to pay taxes (plus potentially a 10% penalty if you’re under age 55 or if you’re under age 59 ½ and you left your employer before the year you turned 55) on it. If it’s a large enough distribution, that money could also put you in a higher tax bracket.

Roll it over. If you don’t want to leave the money behind or send a big check to Uncle Sam, rolling it into a new retirement account allows you to continue postponing the taxes on it. An IRA generally gives you more investment options while rolling it into your employer’s plan can allow you to consolidate your retirement accounts and possibly give you the option  of borrowing against it. If you change your mind, the money you roll into your employer’s plan can typically be rolled into an IRA and vice versa.

Turn it into guaranteed income. Some plans allow you to use your retirement plan balance to purchase an immediate income annuity at discounted rates (and hence you’d get higher payments) or even into a pension plan if you have one. This provides an income that you can’t outlive and avoids any early withdrawal penalties. The downside is that you generally give up the lump sum of money and should only be considered when you’re ready to retire.

Personally, I’d roll my 401(k) into my IRA if I were to leave Financial Finesse because I’d like to have more investment options. I also know people who prefer to keep things simple by rolling everything into their current employer’s plan. If you’re still not sure what to do, consider speaking to an unbiased financial professional.

 

How Would You Take the Powerball Winnings?

January 14, 2016

What would you do if you won yesterday’s $1.5 billion Powerball jackpot? Before you start thinking about how to spend a billion and a half dollars, understand that you won’t get it all at once. Instead, it’s paid out in 30 installments over 29 years. If you want the money now, you only get $930 million. Then there’s taxes. Continue reading “How Would You Take the Powerball Winnings?”

A 6% Guaranteed Return?

June 18, 2015

Would you like a guaranteed 6% return on your investments? Is that even possible? I recently got a helpline call from a woman who thought it was. Her advisor had suggested that she roll her 401k into an annuity that paid “a guaranteed 6% return regardless of what the stock market does.” She thought the only downside is that she had to leave the money in the annuity for 10 years and that there was a 1% fee so the guaranteed return would be 5% after fees. Continue reading “A 6% Guaranteed Return?”

Three Investment Terms You Should Know

April 22, 2015

Have you ever noticed how different words mean different things to different people? The other day I was talking with a helpline caller who was looking for a way to invest their retirement funds such that they couldn’t lose money and could draw an income from it in the future. When I mentioned the word “annuity,” they immediately had a negative reaction as they were lead to believe all annuities were bad, which seemed ironic considering that’s exactly what they just described they were looking for. When it comes to investment terminology, not understanding the meaning of a word can be a financial mistake. Here are three investment terms that are frequently used but often misunderstood: Continue reading “Three Investment Terms You Should Know”

Living Longer May Not Be All Good News For Women

November 05, 2014

According to a new report by the Centers for Disease Control and Prevention’s National Center for Health Statistics, Americans are living longer—o.1 years longer to be exact—as the national life expectancy has reached a new record high of 78.8 years. Women, with an average life expectancy of 81.2 years, live on average 4.8 years longer than men, at 76.4 years. While some may see this purely as a blessing, it does present a financial challenge for today’s women. Namely, women may need to save more for retirement than men in order to account for these additional years. Here are five things women can do to help address this added financial challenge: Continue reading “Living Longer May Not Be All Good News For Women”

What to Do When Your Pension is Terminated

July 24, 2014

As traditional pension funds continue to go the way of the typewriter all across America, you may find yourself in the position of having to decide what to do with a pension plan that’s being terminated by your employer. Fortunately, that doesn’t mean the money disappears. It just won’t be added to anymore and you have to choose what to do with the money. While this may sound like the kind of thing you’d rather not deal with, these come with an expiration date and a default option that may not be your best choice. So let’s look at the pros and cons of some common options. Continue reading “What to Do When Your Pension is Terminated”

Don’t Believe Everything You’re Told…

November 15, 2013

In one of the cooler things I’ve read lately, law enforcement authorities conducted a sting operation to nab a world infamous pirate.  They had to draw him to them since they had very little chance of getting past his protectors. So, they created a fake premise of asking him to be an adviser to a movie about Somali pirates. He took the bait, went to them and was arrested. I’m guessing he is regretting that choice! Continue reading “Don’t Believe Everything You’re Told…”