401k Decision
When a job loss takes your life in a different direction, re-route your retirement savings for better investment control.
When you leave your employer you do not need to leave your money in your employer’s 401(k) plan. In fact, there are several choices you can make for your accumulated retirement savings.
One option is to “cash out” your savings from your 401(k) or other qualified retirement savings account. The benefit is that you get the immediate use of your funds. However, this is usually the worst path you can take since you will be subject to a 10% early withdrawal penalty if you are younger than 55, and you will lose the benefit of tax-deferred growth and sacrifice your retirement savings.
Another option is to leave your money in your former employer’s plan. This would preserve your retirement savings by allowing your money to continue to grow tax-deferred. However, you will not be able to continue making contributions, and your investment options may be limited. These limitations also could apply if you roll your money into a new employer’s account.
The third option is to roll your savings into an Individual Retirement Account (IRA), where you can put your money in virtually any investment option. Beware, however, because there are two different ways to handle this, and one has the potential to be costly.
Indirect Rollover
With an indirect rollover into an IRA, your employer sends you a check and you have 60 days to transfer the money into an IRA. The problem with this option is that your employer will be required to withhold 20% as prepayment of federal income taxes, and you have to make up the difference out-of-pocket when you open up your accounts. You’ll get the 20% back after you file your income taxes that year.
Direct Rollover
Typically, the best choice is to directly rollover your money into an IRA. With a direct rollover, you preserve your retirement savings, continue to grow your money tax-deferred, avoid current taxation and IRA early withdrawal penalties, and open up your menu of investment options to gain much greater investment flexibility.
If you feel that a direct rollover is best for you, or if you need additional guidance to make that decision, please call upon Hilliard Lyons. We’ll walk you through all your alternatives and leave the decision up to you – with no pressure and no obligation.
If you do decide to start a Rollover IRA with Hilliard Lyons, your Financial Consultant can help you create an asset allocation strategy for your retirement savings based on your goals, and help you choose the products which best support your strategy.
To find the Hilliard Lyons office nearest you, please call 1-800-444-1854 or use the convenient “Find a Financial Consultant” tool in the menu.