Are you considering the various options for the savings you have accumulated in your qualified employer sponsored retirement plans (QRPs), such as a 401(k), 403(b), or governmental 457(b)? Know that what you choose to do with your current retirement savings can have a substantial impact on your future. You generally have four options for your retirement plan distribution:
Option 1 — Roll your QRP savings to an IRA
Rolling your money to an IRA allows your assets to continue their tax-advantaged status and growth potential, the same as in your employer’s plan. In addition, an IRA often gives you access to more investment options than are typically available in a QRP and investment advice.
Option 2 — Leave your retirement savings in your former employer’s plan
While this approach requires nothing of you in the short term, managing multiple retirement accounts can be cumbersome and confusing in the long run. And, you will continue to be subject to the QRP’s rules regarding investment choices, distribution options, and loan availability. If you choose to leave your savings with your former employer, remember to periodically review your investments and carefully track associated account documents and information.
Option 3 — Move your retirement savings directly to your new employer’s plan
If you are joining a new company, moving your retirement savings to your new employer’s QRP may be an option. This may be appropriate if you want to keep your retirement savings in one account, and if you’re satisfied with the investment choices offered by your new employer’s plan. This alternative shares many of the same features and considerations of leaving your money with your former employer.
Option 4 — Take a lump-sum distribution (taxes and penalties may apply)
You should carefully consider all of the financial consequences before cashing out your QRP savings. The impact will vary depending on your age and tax situation. If you absolutely must access the money, you may want to consider withdrawing only what you will need until you can find other sources of cash.
Decide which option is right for you
Each of these options has advantages and disadvantages and the one that is best depends on your individual circumstances. You should consider features such as investment choices, fees and expenses, and services offered. We can help educate you regarding your choices so you can decide which one makes the most sense for your specific situation.
Everyone has a different vision of retirement that requires a unique financial strategy. We can support you in your retirement planning process by providing the guidance needed to help make better, informed choices. We will meet with you and help create a comprehensive plan that takes into account your complete financial picture. We will be with you every step of the way to monitor your progress and adapt your plan as needed. Working together, we’ll design and implement a retirement plan that will help you live out your unique vision of retirement.
When considering rolling over assets from an employer plan to an IRA, factors that should be considered and compared between the employer plan and the IRA include fees and expenses, services offered, investment options, when penalty free distributions are available, treatment of employer stock, when required minimum distributions begin, protection of assets from creditors, and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with employer-sponsored retirement plans. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets. Withdrawals are subject to ordinary income tax and may be subject to a federal 10% penalty if taken prior to age 59 1/2.
Wells Fargo Advisors does not provide tax or legal advice. Please consult with your tax and legal advisors to determine how this information may impact your own situation.