When someone changes jobs or retires, they need to decide whether to keep the retirement savings account they have with the old employer, commonly known as 401(k).
They do have the option or ability to “roll it over” or transfer to a new or an existing IRA account.
Depending on the age and the goals and circumstances, it might be best to leave the 401(k) account where it is.
There is an “early withdrawal” penalty to consider. If they are younger than age 59 1/2, many withdrawals from an IRA are subject to a special 10 percent of the amount withdrawn penalty.
However, withdrawals from a 401(k) retirement account can be received in the year they turn age 55 without a 10 percent “early withdrawal” penalty.
Sometimes the 401(k) is invested well and the employer is paying most or all of the fees. If the money is transferred or “rolled over” to an IRA, the owner will pay any fees.
Another possibility for some folks is to transfer the money in the old 401(k) to a new 401(k). It could be the new employer has a 401(k) retirement plan. Or, maybe a new business is started and it has or will have a 401(k) plan that can accept transfers.
It seems important to consider what might happen in the future to help decide to keep the old 401(k) account or to transfer it to a new IRA or other 401(k) plan. If you want monthly checks and the old plan only allows for annual withdrawals, it may be best to transfer to a new retirement account.
Be sure to check out the new employer plan to be sure a transfer will be accepted OK, without a lot of special fees or costs.
Some investments might be transferred “in kind.” If the old account has individual stocks and you want to keep those investments, find out if a transfer can be done “in kind” instead of selling and buying the same investments.
Did you hear? “May you have the hindsight to know where you have been, and the foresight to know where you are going, and the insight to know when you have gone too far.” — Irish blessing
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.