March 2019 Volume 17, Number 3 | |||||
Retirement Plan Options for Former EmployeesWhen employees leave a job, they often have to decide what to do with their 401(k) retirement account. Encourage them to investigate their options based on their financial situation and long-term goals. The decision they make could affect their retirement funds size. Here are options to investigate — along with some pros and cons: Leave the Plan Where it is
Employees can leave their employer-sponsored retirement plan where it is if they have at least $5,000 in the account. However, they cannot add any funds. The funds in the account remain invested. Roll the Plan into the New Employer's Plan
Employees who are leaving one company for another can just roll the old plan balance into the new plan. Roll the Plan into an IRA
If the employee is between jobs or is going to a company without a group retirement plan, there are other options. They can move their funds into an Individual Retirement Account (IRA), either traditional or Roth; however, they will owe taxes on the amount of pretax assets rolled over from a 401(k) into a Roth IRA. Traditional IRAs defer taxes until retirement, when the employee may be in a lower tax bracket and owes less tax on earnings. With a Roth IRA, the employee pays the taxes on contributions now, while earnings grow tax free. Distributions are tax free at retirement. Roll the Plan into an Annuity
There are two categories of annuities ‐ deferred and income. Tax-deferred annuities can be a good way to boost retirement savings once the maximum allowable contribution has been made to a 401(k) or IRA. Deferred annuities have no IRS contribution limits and can be used for a guaranteed retirement income stream. Taking Cash
Employees can take some or all of the funds in cash. This can be tempting for employees experiencing financial difficulties. |
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This Just In ... Expanded Hardship Distribution Rules Proposed for 401(k) Plans Millennials — Changing the Health Care Landscape Hospital Prices Now Must be Published Online — But is it a Game Changer? Retirement Plan Options for Former Employees How to Determine Whether Your Voluntary Plans Fall Under Safe Harbor
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