1. IS YOUR RETIREMENT PLAN STILL WITH YOUR PREVIOUS EMPLOYER?
Do not panic, our agents are trained to help individuals keep rollover their old employers retirement account into a Qualified Account of your own & away from your previous employer. Our Agents help clients protect their money, not risk it - meaning that our licenses legally do not allow us to sell any product that can lose value. We’re here to provide income & protection for retirement and some of life’s unexpected events.
2. WHAT SHOULD YOU DO WITH MY 401K FROM YOUR OLD JOB?
Let’s start with the basics. A 401(k) plan is an employer-sponsored retirement plan that allows you to save money for retirement while deferring income taxes on the savings until the time of withdrawal. As an employee, you can opt to have a portion of your income paid directly into the 401(k) account. Employer-sponsored plans can either be participant-directed (where you choose from a variety of investment options) or trustee-directed (where assets are investment by a board of trustees). Investments typically consist of mutual funds focusing on stocks (including, perhaps, your company’s stock), bonds, and money market funds or stable value investments.
3. WHAT TO AVOID | LEAVING YOUR MONEY WITH THEM
When some people leave their job or retire, they leave their money in their 401(k) plan. Your current company is obligated to let you keep your money in its plan, even if you leave, as long as it exceeds $3,500. If you go to a new employer, you can usually transfer your old 401(k) money into the new employer’s 401(k) account. You will now have the advantage of one account statement instead of two, and your investment options will be different in the new plan. Keeping your money in the 401(k) is, next to cashing out, the second worst thing you can do with you retirement money. The money is still restricted to a defined set of investment options dictated by your company’s plan. All 401(k) plans have limited investment options, no safeguards against losing your principle, and no income protection for your retirement years.
4. WHAT TO AVOID | TAKING THE LUMP SUM OPTION
With a lump-sum payout, you can count on losing a huge chunk of your savings to taxes. If you are over 59 ½ and you choose to cash out the 401k, it will be taxed as current income. Your company will deduct 20% of your savings and hand it over to the IRS as a pre-payment on your income taxes. If you choose to reinvest you will have a lot less money to work. If you are under 59 ½, you may be forced to pay a 10% “early withdrawal” penalty, in addition to the 20% paid to the IRS. If you take the cash all at once, you will be required to report the entire amount on your income taxes for that year. This amount, in addition to your other annual earnings, can bump you into a higher tax bracket. In either case, cashing out your 401(k) is generally one of the worst decisions you can make when it comes to optimizing your retirement dollars.
5. HOW TO KEEP YOUR MONEY SAFE?
Please note, this is just an example of how we help our clients - this is not a financial recommendation or obligation that you are required to follow.
When you leave your job for a new one, or retire, you have a one-time opportunity to take the money from your 401(k) account and transfer it into a better investment vehicle, like investments with more flexible investment options, safeguards against losing your principle, and income protection for your retirement years. We firmly believe that investors retiring or changing jobs should at a minimum look into seizing the opportunity to transfer their investment dollars out of the generally restrictive 401(k) plans, and into more flexible plans such as annuities. Rolling your 401(k) into an annuity gives you a continued tax shelter, while permitting you a huge range of investment options, guarantee of principle options, and living and death benefits that can protect you and/or your family whether the stock and bond markets go up or down and regardless of whether you live or die.
If you choose to roll you 401(k) into an IRA annuity there are two primary types, Immediate and Deferred. With an Immediate Single-Life Annuity, you will receive one check per month for the rest of your life, no matter how long you live. The amount of this monthly check is determined by the size of your account, the interest rates at that time, and your life expectancy. With a joint-and-survivor annuity, the amount of each check will be 10% to 15% smaller because they will be sent every month for as long as you or your spouse is alive. You can also opt for a life with 5, 10, or 20-year certain contract, which will guarantee that monthly checks are sent to your heirs after you and your spouse are deceased. With an immediate annuity you are giving up control of your principal and therefore it is important to understand that you are giving up all of your money in exchange for a series of payments. With a Deferred Annuity you maintain control of your principal, and can receive guaranteed payments while benefiting from potential upside in the stock market. This is accomplished through the purchase of additional riders that will guarantee at a minimum a 5-7% worst-case return on your money, but if the market does better you are guaranteed the higher return and can lock in your new higher principal value to increase your income.
A word of caution: always check with your company prior to making a rollover to see if they offer a payout that is higher than you could get from insurance companies. Most financial advisors won’t suggest this possibility, because if your company’s payment is higher the advisor won’t get a commission. Once you roll over your 401(k) you can’t roll it back, so look before you leap! If your employer does not offer to annuitize your 401(k), you can take a lump sum payout from your 401(k) and use the funds to purchase an annuity contract — just be sure and do so within 60 days of the 401(k) distribution to avoid any taxes, and be sure the check is made out to the new custodian FBO (for benefit of) you, so that the IRS will not deduct 20%.