When you leave a job, whether by your own choice or because of a layoff or furlough, you’ll want to think about what to do with your employer-sponsored retirement account. Consider making a proactive decision, even if that decision is choosing to leave your retirement savings in your employer’s plan. You generally have four options for your retirement accounts.
Keep it Where it Is
Many companies will allow a former employee to keep money in their plan and may require a minimum balance. In general, it may not be the most beneficial decision, especially if the plan’s investment choices are limited, and you want more options, such as through a brokerage account. And, given that the average U.S. worker changes jobs 12 times during his or her career, according to the Bureau of Labor Statistics, it can be challenging to keep track of multiple accounts. This may be a better short-term plan, should you be laid off or furloughed and unsure of your next move.
Move it to a New Employer’s Plan
Once you start a new job, it may make the most sense to consolidate your retirement accounts by moving your savings into the new employer’s plan. By doing this, you keep the money growing tax-deferred and avoid tax penalties or income tax. Before you make this decision, make sure you understand any plan-related costs. Also keep in mind that you have 60 days from the date you receive the plan distribution to roll it over to your new employer’s plan.
Roll it Over Into an IRA
A direct rollover to a Traditional or Roth IRA is worth considering, especially if you have multiple retirement accounts you want to consolidate. You still get the benefit of your money growing tax deferred or tax free and, as long as you roll it over within the 60-day deadline, you’ll avoid penalties and either won’t pay taxes at all, or not until you start to take distributions in retirement, depending on your type of IRA. This type of account opens up the possibilities of what you can invest in, from mutual funds to exchange-traded funds to individual stocks and bonds and more. Because too much choice can be overwhelming, your advisor will work alongside our investment team and can recommend investments based on your risk tolerance and retirement goals.
Cash Out Your Account
Finally, you could choose to cash out of the plan, but it’s generally not in your best interest to do that for several reasons. If you aren’t 59½, you will pay a 10% penalty fee for early withdrawal, in addition to owing federal and state taxes. That being said, as a result of the new CARES Act legislation, you can currently take a distribution of up to $100,000 from now until the end of 2020 without incurring the penalty fee. You do have to pay taxes on that distribution. You have three years to pay back the distribution and the taxes. This option is only effective through the end of the year as a result of the pandemic. And, if you choose to cash out, once you take your money out of the market, you lose the benefit of tax-deferred growth and that could impact your retirement savings over time.
Consider Partnering With an Advisor
Before you make a decision, it may be helpful to talk with your wealth advisor. We’re here to help ensure your retirement investments are diversified and that your assets are allocated in a way that lines up with your tolerance for risk. You may find that, during this pandemic and its related severe market swings, your tolerance for risk has changed. We’re here to help you navigate the uncertainties of the current markets and plan for the retirement you envision for yourself and your family.
Sources
“What Happens to Your 401k When You Leave a Job?”
“The CARES Act Will Allow People to Use Their 401(k) Savings Penalty-Free”
Disclosures
The views expressed are for commentary purposes only and do not take into account any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. The opinions are based on information and sources of information deemed to be reliable, but Mariner Platform Solutions does not warrant the accuracy of the information. The views expressed regarding IRA Rollovers are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. It is not intended to be a solicitation to buy or sell or engage in a particular investment strategy. Before initiating a rollover, please consult with a financial or tax professional.
Investment advisory services provided through Mariner Platform Solutions, LLC (“MPS”). MPS is an investment adviser registered with the SEC, headquartered in Overland Park, Kansas. Registration of an investment advisor does not imply a certain level of skill or training. MPS is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MPS transacts business and maintains clients. MPS is either notice filed or qualifies for an exemption or exclusion from notice filing requirements in those states. Any subsequent, direct communication by MPS with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MPS, including fees and services, please contact MPS or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you invest or send money.
Investment Adviser Representatives (“IARs”) are independent contractors of MPS and generally maintain or affiliate with a separate business entity through which they market their services. The separate business entity is not owned, controlled by or affiliated with MPS and is not registered with the SEC. Please refer to the disclosure statement of MPS for additional information.
