Considering a 401K rollover?
Consider your options first.

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Options for an old 401K

Roll over to a Research Financial Strategies IRA

Roll over to an IRA and consolidate your retirement accounts in one place while continuing tax-deferred growth potential. Easier is better!

Roll over to a new workplace plan

If allowed, this option lets you consolidate all of your 401Ks into one account while continuing tax-deferred growth potential. Investment options vary by plan.

Stay in your old workplace plan

If permitted by the 401K provider, this option lets you continue tax-deferred growth potential; however, you can no longer contribute to the old plan. Investment options vary by plan.

Cash out your old 401K

If you withdraw the money from your old employer 401K plan, your cash distribution will be subject to state and federal taxes and,  a 10% withdrawal penalty may apply.  Additionally, your money won’t have the potential to continue to grow tax-deferred.
You may want to consult your tax advisor about your situation.

 

One great thing about a 401K retirement savings plan is that your assets are often portable when you leave a job. But what should you do with them? A rollover to an IRA (Individual Retirement Account) is one way to go, but you should consider your options before making a decision. There are several factors to consider based on your personal circumstances. The information provided here can help you decide.
If you decide a rollover is right for you, we’re here to help. Contact us»

 

Consider which option is right for you

Roll over your money to a Traditional IRA.

If you’re switching jobs or retiring, rolling over your 401K to a Traditional IRA may give you more flexibility in managing your savings. Traditional IRAs are tax-deferred1 retirement accounts.

Pros
  • Your money can continue to grow tax-deferred.1
  • You may have access to investment choices that are not available in your former employer’s 401K or a new employer’s plan.
  • You may be able to consolidate several retirement accounts into a single IRA to simplify management.
  • Your IRA provider may offer additional services, such as investing tools and guidance.
Cons
  • You can’t borrow against an IRA as you can with a 401K.
  • Depending on the IRA provider you choose, you may pay annual fees or other fees for maintaining your IRA, or you may face higher investing fees, pricing, and expenses than you would with a 401K.
  • Some investments that are offered in a 401K plan may not be offered in an IRA.
  • Your IRA assets are generally protected from creditors only in the case of bankruptcy.
  • Rolling over company stock may have negative tax implications.
  • Whether or not you’re still working at age 70½, RMDs are required from Traditional IRAs.

Roll over your money to a Roth IRA

If you’re transitioning to a new job or heading into retirement, rolling over your 401K to a Roth IRA can help you continue to save for retirement while letting any earnings grow tax-free.2

Pros
  • You can roll Roth 401K contributions and earnings directly into a Roth IRA tax-free.2
  • Any additional contributions and earnings can grow tax-free.2
  • You may have more investment choices than what was available in your former employer’s 401K.
  • Your Roth IRA provider may offer additional services, such as investing tools and guidance.
  • You can consolidate multiple retirement accounts into a single Roth IRA to simplify management.
Cons
  • You can’t borrow against a Roth IRA as you can with a 401K.
  • Any Traditional 401(k) assets that are rolled into a Roth IRA are subject to taxes at the time of conversion.
  • You may pay annual fees or other fees for maintaining your Roth IRA at some companies, or you may face higher investing fees, pricing, and expenses than you did with your 401K.
  • Some investments offered in a 401K plan may not be offered in a Roth IRA.
  • Your IRA assets are generally protected from creditors only in the case of bankruptcy.
  • Rolling over company stock may have negative tax implications.

Leave your money in your former employer's plan, if your former employer permits it.

Choosing this option means you don’t have to make an immediate decision about where to move your savings. Your account stays subject to your previous employer’s plan rules, including investment choices, costs, and withdrawal options.

Pros
  • No immediate action is required.
  • Any earnings remain tax-deferred1 until you withdraw them.
  • You may have access to investment choices, loans, distribution options, and other services and features that are not available with a new 401K or an IRA.
  • You still have the option of rolling over to an IRA or to a 401K offered by a new employer in the future, if the new employer’s plan accepts rollovers.
  • Your former employer may offer additional services, such as investing tools and guidance.
  • Under federal law, assets in a 401K are typically protected from claims by creditors.
  • Your former employer’s plan may have lower administrative and/or investment fees and expenses than a new 401K or an IRA.
  • You may be able to take a partial distribution or receive installment payments from your former employer’s plan.
  • If you leave your job between ages 55 and 59½, you may be able to take penalty-free withdrawals.
  • Required minimum distributions (RMDs) may be delayed beyond age 70½ if you’re still working.
Cons
  • If you hold stock in your former employer in the plan, you may have special tax or financial planning needs you should consider before rolling over your assets to a new employer’s 401K or an IRA.
  • You can no longer contribute to a former employer’s 401K.
  • Your range of investment choices and your ability to transfer assets among funds may be limited.
  • Managing savings left in multiple plans can be complicated.
  • The fees and expenses for your former employer’s 401(k) may be higher than those for a new employer’s 401K or an IRA.

Roll over your money to a new 401K plan, if this option is available.

If you’re starting a new job, moving your retirement savings to your new employer’s plan could be an option. A new 401K plan may offer benefits similar to those in your former employer’s plan. Depending on your circumstances, if you roll over your money from your old 401K to a new one, you’ll be able to keep your retirement savings all in one place. Doing this can make sense if you prefer your new plan’s features, costs, and investment options.

Pros
  • Any earnings accrue tax-deferred.1
  • You may be able to borrow against the new 401K account if plan loans are available.
  • Under federal law, assets in a 401K are typically protected from claims by creditors.
  • You may have access to investment choices, loans, distribution options, and other services and features in your new 401K that are not available in your former employer’s 401K or an IRA.
  • The new 401K may have lower administrative and/or investment fees and expenses than your former employer’s 401K or an IRA.
  • Required minimum distributions (RMDs) may be delayed beyond age 70½ if you’re still working.
Cons
  • You may have a limited range of investment choices in the new 401K
  • Fees and expenses could be higher than they were for your former employer’s 401(k) or an IRA.
  • Rolling over company stock may have negative tax implications.

Take a cash distribution

While withdrawing all of your money may seem like a good idea in the short-term, be sure you understand the consequences before you do. Money withdrawn will be taxable and subject to a mandatory 20% federal withholding rate. You may also face early withdrawal penalties.

Pros
  • Having the cash could be helpful if you face an extraordinary financial need.
Cons
  • Taxes and penalties for taking a cash distribution may be substantial.
  • Withdrawals before age 59½ may be subject to a 10% early withdrawal penalty and will be taxed as ordinary income.
  • Your savings will no longer grow tax-deferred.1
  • Withdrawing your money may impact whether you have enough money for retirement.
Once you’ve made your decision, and if you’re interested in a IRA, the Research Financial Strategies team of Rollover Consultants can help you take the next step.

Information Source: Schwab.com

1. With a tax-deferred investment, your earnings can grow tax-free until you withdraw them. This means that instead of paying taxes on returns as they grow, you pay taxes only at a later date. IRAs are common tax-deferred investments.
2. Tax-free withdrawals of earnings may be permitted five years after the first contribution that created the account

The information above is for general informational purposes only and should not be considered a recommendation of any of the above options or as specific individualized tax, legal, or investment advice. Where specific advice is necessary or appropriate, RFS recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager.