Have you ever looked in the mirror and thought to yourself, what is this hairstyle really doing for me? If it doesn’t make you feel beautiful, doesn’t flatter your face shape and compliment your skin tone, you would probably change it. If something’s not making you feel good, confident, safe, in control, or happy – do something about it. This goes for your employer-sponsored retirement plan, too. Do you love the advisor who manages it for you? Do they make you feel confident about your investment selections? Do they communicate to make sure you’re happy? Do they even know you? If not, it’s time to discover and review your options. You might not be stuck with it.
It’s widely unknown that even while you remain an active employee of your company, you’re sometimes allowed to move money from that 401(k) into your own self-directed retirement account. Why would want you do this? If you want more control, if you want to choose a financial advisor you like and trust, more investment options, and greater flexibility you might want to consider doing a rollover into an IRA. This doesn’t mean you have to close your 401(k) and stop receiving your employer’s match. Hell no! Take advantage of that as long as you’re working there. Never leave free money on the table. But what about the large lump sum of money you’ve accumulated over the years?
Aside from the match you may get inside your 401(k), what is your 401(k) really doing for you? Is it providing virtually unlimited investment options? No; it’s most likely restricting you to 30 or 40 fund choices, if you’re lucky. Is it allowing you to choose the financial advisor who manages it? Probably not. We’d consider you fortunate if you had a personal relationship with him/her beyond the group meetings they host at your office the first Monday of each quarter. If you do have a great relationship with the advisor assigned to your company 401(k) plan and you feel you have plenty of good investment options, good for you!
Employer sponsored plans such as 401(k) plans and 403(b) plans are excellent retirement savings tools. But don’t assume that just because you work for a company who’s providing the plan to you that it’s the best option for all of your retirement savings. Find out if you’re eligible for an in-service distribution. An in-service distribution is exactly what it’s name suggests: You’re still employed (in-service) and can distribute (rollover) a portion of your balance to an IRA without tax consequences. Of course, if you change jobs, you can absolutely rollover your full 401(k) balance into an IRA. If you have multiple 401(k)s from past jobs, consider consolidating into one IRA. This should make managing the investments easier, decrease the amount of statements you get, and help to match the funds’ objectives with yours.
Leaving your 401(k) alone might be fine, too. Whether in a 401(k) through work or in your own IRA, your investments will receive the same tax treatment. But do keep in mind the potential advantages to moving the money out:
- More investment options such as funds in sectors not available inside your plan
- Work with any advisor you want
- Access insurance for your investments to provide things such as future income or downside principal protection
- The option to add a death benefit for your beneficiaries that could enable them to avoid probate
It’s your life and it’s your money. Make sure it’s doing all it can do for you. After all, the more money you can build up for your retirement, the less likely you’ll need to cut back your lifestyle (and cut your own hair) when you’re retired.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.
Please consult with a professional regarding possible fees and charges by your 401k plan sponsor before moving assets. As each individual’s tax situation is different, take time to consider all the facts and consult with your tax advisor before initiating a rollover. Distributions received before age 59 1/2 are subject to an early distribution penalty of 10% additional tax unless an exception applies. This information is not intended to be a substitute for specific individualized tax, legal or estate planning advice