What to do with an old 401(k)?
Laid off during an economic crisis like now can be difficult. Leaving your old 401(k) behind should not be. There are some great advantages to rolling over your old 401(k)’s and IRA’s into one consolidated IRA.
This includes –
#1 More investment options– Unlike 401(k)s which reduces options to what your employer offers, IRAs allow account holders to own many different assets within the account, including 60,000 different stocks, 8000 different mutual funds, ETF’s, bonds and many other investment options.
#2 Less fees – With ERISA, DOL and the IRS overseeing 401(k)s, there is extra reporting which costs money. Also, there is the advisor, custodial and per participant fees which typically ranges 1.5% to 2%. If your old 401(k) is in many variable annuity products, those fees can go be towards 4% in annual fees. It is worth investigating the fees you are paying on your old 401(k).
#3 Personal guidance– With a company 401(k), there typically is an 800# to call where they can answer questions but, in most cases, cannot give advice. Working with an independent advisor you can get help with making your investment choices with the knowledge that they are looking at your whole financial picture.
#4 Keep Saving – Once you have left your job you cannot continue to contribute to the company 401(k) by moving to an IRA it will allow you to contribute new money to your future retirement. In 2020, you can contribute $6k and if you are 50 or older up to $7k. But even if you can save only a little bit a month, you are investing in your future.
#5 Roth Conversion Option– Once it’s in a Traditional IRA you can speak with your advisor and CPA about considerations around shifting money from a Pre-Tax account to a Post-Tax account. This may save you money in the future when you are ready to retire.
#6 Estate planning benefits– In many cases in a 401(k) your beneficiary will get paid in one lump sum, in an IRA they will allow you to stretch payments out over 5 years.
#7 Better communication- If you leave your 401(k)account with your old employer, you might not get the updates you deserve. You might be out of the loop with communications regarding the plans or how get in touch with an advisor or administrator- news is often distributed through company email or could be sent to outdated contact information.
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