Account Consolidation: Streamlining Your Retirement Savings
Multiple retirement accounts may mean multiple investment decisions, statements, fees, emails, and more. Consolidating retirement accounts can make it easier to manage your retirement savings.
This document is intended to be educational in nature and is not intended to be taken as a recommendation.
Investment and insurance products are:
- Not insured by the Federal Deposit Insurance Corporation or any federal government agency.
- Not a deposit, obligation of, or guaranteed by any Bank or Banking affiliate.
- May lose value, including possible loss of the principal amount invested.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
Financial professionals are sales representatives for the member of Principal Financial Group®. They do not represent, offer, or compare products and services of other financial services organizations.
Insurance and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754,member SIPC. Principal Life and Principal Securities are members of Principal Financial Group® , Des Moines, IA 50392.
There Are Plenty Of Questions To Ask Before Rolling Over Your Old 401
Rollovers are a great way to consolidate your retirement accounts, especially if you’ve moved from job to job a few times, but they should be done on a case-by-case basis.
- Print icon
- Resize icon
There are plenty of reasons why rolling retirement assets from one account to another makes sense, but there are also plenty of questions to ask and answer before making that decision.
Investors may decide to move money from one retirement plan to another because theyre switching jobs, or because they found a better investment opportunity in another account. Some retirees might want to consolidate their retirement assets, while others may be attempting to diversify the tax component of their savings by moving a portion of their funds into a Roth account.
Retirement tip of the week: Wondering if you should roll over an old 401 plan or merge a few different retirement accounts? Before you do anything, think about the tax implications, the fees, the types of investments available and when youll need the money.
Rollovers are neither right nor wrong by themselves. The decision to roll assets over should be made on a case-by-case basis. For example, some people might want to leave the money in their former employers plan because of the investment strategy available there, said Carl Holubowich, a certified financial planner and a principal of advisory firm Armstrong, Fleming and Moore, Inc. They might also be ready to retire, and want to use the money soon.
What to look out for
Choose Which Type Of Ira Account To Open
A 401 rollover to an IRA may give you more investment options and lower fees than your old 401 had.
If you do a rollover to a Roth IRA, youll owe taxes on the rolled amount.
If you do a rollover to a traditional IRA, the taxes are deferred.
If you do a rollover from a Roth 401, you won’t incur taxes if you roll to a Roth IRA.
Don’t Miss: How Do I Start My Own 401k
Our Favorite Custodian For Retirement Gold
As mentioned before, gold must be stored with a custodian firm.
And because gold IRAs are a relatively new investment option, established in 1997, there are new companies providing an all-in-one service.
So, how do you know which company is trustworthy and the best choice for you? Afterall, this is your retirement savings were talking about here.
We recommend Advantage Gold as the best gold IRA company, after reviewing and comparing them against other companies.
Advantage Gold comes out on top for 5 main factors:
They emphasize educating their customers rather than hard selling, which is a great choice for first time buyers.
They empower their customers to make the best decisions based on knowledge of availability of other options.
And their timely communication and resolving customer complaints result in high customer satisfaction .
They are also accredited by the Better Business Bureau .
Policies and Fees
Relatively new, but building a solid base.
Absolutely allows buybacks and at fair market value, any time.
Uses Brinks depositories, which is one of the best in the storage industry.
There are many companies out there, so make sure to choose the one that fits with your investment strategy.
Considering A 401 Rollover Consider Your Options First
If you decide a 401 rollover is right for you, we’re here to help. Call a Rollover Consultant at .
One great thing about a 401 retirement savings plan is that your assets are often portable when you leave a job. But what should you do with them? Rolling over your 401 to an IRA is one way to go, but you should consider your options before making a decision. There are several factors to consider based on your personal circumstances. The information provided here can help you decide.
Don’t Miss: How Do I Look At My 401k
Rollover To An Ira Can Mean Tax
If you rollover to an IRA you may have a wide choice of investment options, including choices that employers might not offer, such as mutual funds, annuities and bank CDs. This option allows your funds to continue growing tax-deferred. And you can simplify your financial life by moving the account to a company where you already have funds or even into an existing IRA.
If you choose a Traditional IRA, you won’t pay any taxes when you conduct a rollover. If you roll money into a Roth IRA, you’ll be taxed on the money going into the account, but pay no federal income taxes when you withdraw the money . Money from a Roth 401k can be rolled into a Roth IRA tax-free.
When rolling over a 401k balance into an IRA it’s important to do a full comparison on the differences in the guarantees and protections offered by each respective type of account as well as the differences in liquidity/loans, types of investments, fees and any potential penalties.
You May Be Able To Leave Your Account With Your Former Employer At Least Temporarily
Changing jobs is stressful, even in the best of circumstances. If youve lost a job and are scrambling for re-employment, youre likely focused on that. But eventually you will need to figure out what to do with your 401.
If your balance is $5,000 or more, you can leave the money right where it is which will give you time to decide the best course of action for you.
What you should do right away, regardless of the 401 balance in your old plan, and as early as your first day at the new job, is to sign up for your new companys 401 plan. Even if your new employer has an automatic opt-in feature that does not kick in for one to three months and if you rely on that, rather than taking the initiative you can miss 30 to 90 days of contributions and matching funds, Bogosian advises.
After six months, youve got a handle on the job, know youre going to stay and have some experience with your new plan. Youre now in a better position to compare your last 401 plan with this new one, including the diversity of the investments and the costs.
But what happens if the balance in your old 401 is less than $5,000? Your former employer may force you out of the plan by placing your funds in an IRA in your name or cashing you out and sending you a check.
Some companies have recently adopted auto portability meaning your small balance may automatically transfer to your new employers plan. Check with your HR Department or plan sponsor to see if this applies.
Read Also: Is Fidelity Good For 401k
How The Rollover Is Done Is Important Too
Whether you pick an IRA for your rollover or choose to go with your new employer’s plan, consider a direct rolloverthats when one financial institution sends a check directly to the other financial institution. The check would be made out to the bank or brokerage firm with instructions to roll the money into your IRA or 401.
The alternative, having a check made payable to you, is not a good option in this case. If the check is made payable directly to you, your employer is required by the IRS to withhold 20% for taxes. As if that wouldn’t be bad enoughyou only have 60 days from the time of a withdrawal to put the money back into a tax-advantaged account like a 401 or IRA. That means if you want the full value of your former account to stay in the tax-advantaged confines of a retirement account, you’d have to come up with the 20% that was withheld and put it into your new account.
If you’re not able to make up the 20%, not only will you lose the potential tax-free or tax-deferred growth on that money but you may also owe a 10% penalty if you’re under age 59½ because the IRS would consider the tax withholding an early withdrawal from your account. So, to make a long story short, do pay attention to the details when rolling over your 401.
Where Should You Transfer Your 401
You have several options on what to do with your 401 savings after retirement or when you change jobs. For example, you can:
The right choice depends on your needs, and thats a choice everybody needs to make after evaluating all of the options.
Want help finding the right place for your retirement savings? Thats exactly what I do. As a fee-only fidicuary advisor, I can provide advice whether you prefer to pay a flat fee or youd like me to handle investment management for you, and I dont earn any commissions. To help with that decision, learn more about me or take a look at the Pricing page to see if it makes sense to talk. Theres no obligation to chat.
Important:The different rules that apply to 401 and IRA accounts are confusing. Discuss any transfers with a professional advisor before you make any decisions. This article is not tax advice, and you need to verify details with a CPA and your employers plan administrator. Likewise, only an attorney authorized to work in your state can provide guidance on legal matters. Approach Financial, Inc. does not provide tax or legal services. This information might not be applicable to your situation, it may be out of date, and it may contain errors and omissions.
Don’t Miss: When Can You Take Out 401k
What To Ask Yourself Before Making A Withdrawal From Your Retirement Account
There are many valid reasons for dipping into your retirement savings early. However, try to avoid the mindset that your retirement money is accessible. Retirement may feel like an intangible future event, but hopefully, it will be your reality some day. So before you take any money out, ask yourself: Do you actually need the money now?
Think of it this way: Rather than putting money away, you are actually paying it forward. If you are relatively early on in your career, your present self may be unattached and flexible. But your future self may be none of those things. Pay it forward. Do not allow lifestyle inflation to put your future self in a bind.
With all this talk of 10% penalties, and not touching the money until youre retired, we should point out that there is a solution if you feel the need to be able to access your retirement funds before you reach age 59 ½ without penalty.
Contribute to a Roth IRA, if you qualify for one.
Because contributions to Roth accounts are after tax, you are typically able to withdraw from one with fewer consequences. Keep in mind that there are income limits on contributing to Roth IRAs, and that you will still be taxed if you withdraw the funds early or before the account has aged five years, but some people find the ease of access comforting.
For some folks, however, a Roth-type account is not easily available or accessible to them.
When Does A Roth Conversion Make Sense
Now, there is one other type of rollover we need to talk about: a Roth conversion. That happens when you roll over money from a traditional 401 into a Roth IRA.
Heres how it works: When you put money into your traditional 401, you used pretax dollarsthat means it hasnt been taxed yet. So, when you transfer that pretax money into a Roth IRA, which is funded with after-tax dollars, youll have to pay taxes on that money now. Thats the bad news.
But the good news is that from now on, that money will grow inside your Roth IRA tax-free and you wont pay any taxes on that money when youre ready to withdraw from the account in retirement. A Roth conversion might feel like ripping off a Band-Aid now, but itll feel great once you retire.
You might want to seriously consider doing a Roth conversion only if you can afford to pay the tax bill with cash you have saved up. But be careful, because a conversion could add thousands of dollars to your tax bill. If thats just too much for you to stomach, then stick with a traditional IRA rollover.
This is a big decision, and you dont have to make it alone! Get in touch with a tax advisor who can help you understand the tax implications of a Roth conversion and help you decide which option might work best for you.
Don’t Miss: Is Rolling Over 401k To Ira Taxable
S To Roll Over 401k To Ira
The process is simple:
Leave The Account Alone
If your 401 investment balance is more than $5,000, most plans allow you to just leave it where it is. This is often the simplest choice. If you dont urgently need the money, leaving your 401 account alone allows it to continue growing from investment gains.
It may make sense to roll over the 401, though, if youre paying high fees for the management of the account where it is, or if you want more control over how your money is invested.
If the account balance is less than $5,000, your old company may also opt to distribute the money to you. Then its largely on you to roll it over into a new retirement account if you want to avoid having to pay taxes on it nowand possibly a penalty.
Read Also: How Can I Get Money Out Of My 401k
How We Can Help
If you have a 401 and are exploring what options make the most sense for you, we invite you to meet with one of our financial advisors to discuss your situation. He or she will take the time to explain the options available to you, answer any questions you may have and together you can determine what’s best for you.
How Can I Protect My 401 From A Stock Market Crash
Although, there is no way to perfectly protect your investments from a financial downturn, there are solid strategies you can take to hedge against a major crash. These include keeping a diverse portfolio, not panicking when dips happen in the market, and consistently funding your 401 over time.
The Balance does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal. Investors should consider engaging a financial professional to determine a suitable retirement savings, tax, and investment strategy.
Recommended Reading: Can I Use My 401k To Purchase A Home
Invest In High Cash Companies
Some companies are in a far better position to survive and thrive in a stock crash than others. In particular, companies with a lot of money grow and make more money in a crash.
For instance, Warren Buffetts Berkshire Hathaway expanded during the stock market crash of 2008. In fact, Berkshire Hathaway bought the Burlington Northern Santa Fe Railroad for $26 billion in cash and stock in 2009. Berkshire could buy them because it had lots of cash.
Hence, investing in companies with large amounts of cash on hand is a great way to protect your portfolio from a market crash. You can learn how much cash a company has by checking its balance sheet. Companies list cash as cash and equivalents, short-term investments, or cash and short-term investments in their balance sheets.
Currently, companies with a lot of cash include:
- Berkshire Hathaway
- Banks. Notably, big banks like Goldman Sachs
- Wells Fargo
Concentrating your investments in high-cash industries like finance and technology is one way to protect yourself from crash effects. Moreover, avoiding low cash companies like retailers is a good way to protect your funds.
Finally, a simple rule of thumb you can follow is to only invest in companies with at least $20 billion in cash. Such companies are more likely to profit and grow during a crisis. Stock Rover provides a 10-year history and cash forecasting data for all stocks on the USA and Canada stock exchanges.