The average worker stays at his or her job for an average of 4.4 years, according to this Forbes article.
Chances are, at some point then, you will find yourself in a situation where you’ve still got your 401k plan with your previous employer. And if so, you’ll probably have a few questions like:
1) Can I keep it at my former employer’s 401(k) plan?
Answer: Generally, yes, if you have at least $5,000. If you don’t, the funds may automatically be distributed to you, which you can then roll over into your own IRA, or if your new employer allows it, roll it over into your new employer’s 401(k) plan.
And if you’re nearing retirement, there is one added benefit of keeping it in a 401(k) plan instead of rolling it over into an IRA: penalty-free withdrawals start at 55 for 401(k) plans, whereas with IRAs, you have to wait until 59 1/2 to get the same benefit. (source: bankrate.com)
The downside is that you won’t be able to contribute to it anymore, and plan loans will most likely not be available anymore.
2) What if I want to cash out? Can I do that?
Answer: Yes, but cashing out early (if you’re below 59 1/2) will cost you an additional 10% penalty, which is on top of the Federal taxes and State taxes that the income event will trigger. This is the least attractive option out of all of them.
3) What if I want to move my 401k? What are my choices? (See our “Why Parabolic?” post to learn more.)
Answer: As mentioned briefly above, some employers will allow you to roll it over into your new company’s plan. The other option is to directly roll your 401k into an IRA. Directly rolling the assets into an IRA has many advantages, plus it allows you to maintain the tax-deferred status of your previous employer’s 401k assets, so you don’t pay taxes until you withdraw them.
Other advantages:
1) Some 401(k) plans offer mutual funds that charge high fees, and moving your 401k into an IRA can free you of those limitations by allowing you to invest in lower cost options. As an independent investment adviser, we can we can show you the lowest cost options that pay us no commissions. Studies have shown that high fees play a large role in investment underperformance, so exploring this option may provide big benefits over time.
2) Some companies just offer a narrow range of mutual funds or company stock. With an IRA, your menu of available investments options expands to allow pretty much anything: individual stocks, bonds, CDs, mutual funds, and ETFs.
With the expanded number of investment options, it’s easy to get lost and become uncertain as to what steps to take next. We can help eliminate the guesswork. Contact us for a free review of your investments.
At Parabolic Asset Management, we have over 15 years of experience managing investments, and currently help families and individuals make solid financial decisions to help them reach their goals. We are a fee-only investment advisory, accept no third-party incentives or commissions, serve only your best interests, and seek the lowest-cost solutions to help you meet your investment goals.
Let us help you take control of your future.
Contact us today at (619) 888-4070 or email us at rainier@parabolic.us to schedule a free review of your investment portfolio (see our “Why Parabolic?” post to learn more). There is no obligation to work with us after the review. We’ll review your holdings and asset allocation, and see if we can also reduce or eliminate some of the fees you’re paying. We have found that 2 out of 3 investment portfolios we review can benefit from lower fees. Can yours be one of them?
• Experienced: Over 15 years of experience, spanning three bull markets and two bear markets. Managed $100 million at Wells Fargo’s Wealth Management division and co-managed a $50 million hedge fund.
• No Conflicts Of Interest: You get unbiased advice because we don’t sell commissioned products. Fee is 1% of AUM (learn more).
• Your Interests Come First: We are held to the Fiduciary Standard, not the Suitability Standard.
• Avoid High Expenses: Index funds have up to 90% lower fees than actively-managed mutual funds and outperform them over the long term. Don’t own them? You may be paying too much.
Rainier Trinidad, CFA
San Diego and Coronado’s Fiduciary Financial Advisor
Parabolic Asset Management
206 J Avenue
Coronado, CA 92118
rainier@parabolic.us
(619) 888-4070
Investment Risk Disclaimers: (i) Investments involve risk and are not guaranteed to appreciate, and (ii) Past performance is no guarantee of future results.
