Saturday, April 08, 2017 5:12 PM
Have you recently changed jobs or retired from your current employer? You may be wondering what you should do with your old employer retirement plan.
Former employees typically have four options for their old 401(K) or other employer retirement plan when they leave their job. The options may vary slightly depending on the type of plan and your former employer.
Option 1: Take a Lump Sum Distribution
Taking a lump sum distribution is usually the worst choice. For a traditional 401(K), your contributions are pre-tax and grow tax-deferred. The lump sum distribution will be fully taxable as ordinary income. Large lump sum distributions may even push you into a higher tax bracket. There may even be an early-withdrawal penalty if you are younger than age 55 when you take the distribution.
Option 2: Leave the Money in the Employer Plan
If you leave the money in your employer plan, it will continue to grow tax-deferred until you take cash distributions in the future. Cash distributions from a 401(k) plan are generally subject to required 20% federal tax withholding and the entire distribution is considered ordinary income. The benefit of keeping your money in the 401(k) plan is that it offers greater creditor protection than an IRA. Creditor protection for IRAs is limited to $1 Million and may vary depending on your state. 401(k)s can typically be kept open unless the employer decides to terminate the plan. In the event that occurs, you will be required to move your money elsewhere. You may also experience blackout periods if the plan is being amended or changed that will prevent access to withdrawals and rollovers to other plans. Other factors you should look at before making your decision are investment options and fees. 401(k) plans are often limited to 10-20 funds that may make it difficult to properly diversify your portfolio. You should also ask the 401(k) provider about their administration, trading, and fund fees as these are often not visible in your statements. 401(k) providers also offer only limited investor education and asset allocation advice, not comprehensive financial planning.
Option 3: Rollover to a new employer 401(K)
For job changers, you may have the option to rollover your 401(K) to your new employer’s plan. Like in option 2, you will want to review the plan details to determine what advantages or disadvantages you may encounter.
Option 4: Rollover to an IRA
Many choose to rollover old retirement plans to an IRA for consolidation purposes. IRAs have similar benefits to 401(K) plans in that your money will continue to grow tax-deferred and the direct rollover does not constitute a taxable event. The advantage of the IRA is that it provides more flexibility and control than the 401(k) plan. With IRAs, you have your pick of custodians to hold the account and a universe of investment options to choose from. Distributions from the IRA are taxable as ordinary income and it is typically recommended but not required that you withhold taxes at your anticipated tax rate. Distributions before age 59 ½ are subject to a 10% penalty tax. IRA rollovers can also simplify your required minimum distributions (RMD) when they start at age 70 ½. Consolidating old employer plans into one IRA means you only have to calculate and take one distribution. If you have multiple old 401(k) plans, as many people do, you will have to contact each plan for your RMD calculation and distribution options. IRAs also have the option to be converted to Roth IRAs if you prefer to realize the taxes today. Roth IRAs grow tax-free for the rest of your life and do not have RMDs. This option may be preferred for people who do not need RMDs for income and want to leave a tax-free inheritance to their heirs.
As you can see, there is much to consider when it comes to 401(k) rollovers. We recommend talking to a trusted financial advisor to help you weigh your options.
Sunday, March 26, 2017 5:13 PM
Every year someone you know plays a prank on you on April 1st. If you look up April Fool’s Day it is unclear how it started or even what it is about. Some historians speculate that April Fools’ Day dates back to 1582, when France switched from the Julian calendar to the Gregorian calendar, as called for by the Council of Trent in 1563. People who failed to recognize the change, and continued to celebrate New Year during the last week of March through April 1st, became the butt of jokes and hoaxes which included having paper fish placed on their backs and being referred to as “ poisson d’avril ” (April fish), said to symbolize a young, easily caught fish and a gullible person.
Monday, March 20, 2017 12:33 PM
I am sad. As my two favorite F seasons both recently came to a conclusion. The NFL concluded its season in spectacular fashion with the NFL’s version of the “Evil Empire” winning yet another Super Bowl ring and Misters Brady and Belichick being considered amongst the greatest ever at their respective jobs. If that didn’t make me melancholy, the closing of the other F season certainly does, that’s right the Federal Employee Group Life Insurance (aka FEGLI) also recently closed. Maybe it takes an insurance guy to truly appreciate that open season, but I digress. So you may be wondering, what is the connection between Bill Belichick and the recent FEGLI open season closure. Well, hang on because it is about to get exciting (at least for the insurance world definition of exciting).
Friday, March 10, 2017 12:05 PM
2016 proved to be a year of significant, and at times surprising, events. Between the U.K.’s Brexit vote, Republican sweep of the U.S. election, U.S. equities reaching record levels, and the Fed’s decision to raise interest rates, it was a momentous year. In this recorded webinar, we reflect on these events, discuss specific investments' sectors and what can individual investors do to protect and maximize their investments.
Watch, as Ted Cox, Managing Director and Senior Investment Consultant at City National Rochdale shares the firm’s outlook and strategy, including the following:
- Sector-specific overviews: U.S. equities, high dividend and income equities, taxable and municipal IG bonds, high yield bonds, municipal high yield bonds
- What to anticipate from a Trump administration and GOP Congress
- How can you prepare for what's ahead?
Wednesday, March 08, 2017 9:29 PM
As the father of a nine year-old girl, I often find myself wondering about the mixed messages given to girls, and the impact they have. As an example, last weekend I was doing an internet search for fun science projects I could do with my daughter. In one of my searches, Google returned a science kit advertised as fun for a “boy’s birthday party” - apparently girls don’t enjoy science. Princesses are never happy until they get hitched to a prince and the Little Mermaid gave up her whole family for a boy she had never even met. I want my daughter (and all girls, for that matter) to grow up to be a strong, self-assured woman with an abundance of confidence. I don’t want her happiness to be dependent on anyone but herself. In my opinion, a key to this goal is to teach her to be financially smart. So what financial advice will I give her?
Monday, February 13, 2017 7:36 AM
Millions of individuals marry every year where they promise to "love, honor and cherish each other for better or worse, for richer or poorer…till death us do part." Yet, one of the top challenges marriages face are finances. No matter how close couples are when it comes to money issues, it can pull at the very fiber of their relationship. This financial obstacle facing many couples can be altered by aligning their money values and beliefs. Let’s face it, financial harmony is easier said than done, still it can be cultivated.
Wednesday, February 08, 2017 5:54 AM
My parents grew up in the generation where a great deal of mothers stayed home and raised the children and managed the household. My father worked for 45 years as a letter carrier and odd jobs for extra money along the way. It worked. They raised 4 children in a very small townhouse in Dundalk, MD in the 70’s and 80’s.
My mother kept the books, so to speak, and managed household purchases i.e. groceries, holiday gifts birthday gifts etc. She paid the bills and managed the finances and my dad worked. That was the way it worked for them. It was very common for families growing up then to have divided responsibility.
Now even though they have a son that is a financial advisor and I helped them along the way with planning the small amount of investments they were able to save, my mother was private and stubborn about many things. I am sure that many of you can empathize with regard to your own family dynamics. They had an estate plan. They had insurance. But there was one thing for which they were not ready.
Tuesday, January 24, 2017 8:24 PM
It’s the New Year and we all have our resolutions. Many of you plan on losing weight, getting into better shape and some of you plan on improving your financial situation. Financial planners are often asked, what is one thing I should focus on to improve my financial picture?
We have listed below not just one, but 7 simple things you can do this month and going forward to make a big impact on your financial future. If you do just one of them, you will have made progress. If you do all 7 consistently, you are well on your way to a successful financial future. Many of our clients do this already, so this list isn’t just for you. It is a great list to share with members of your extended family and your friends. This topic can be boring but is very helpful and essential for improving your financial future.
Sunday, January 22, 2017 2:49 PM
Valuations Are Fair and Earnings Should Improve
Since the election the stock market is making new highs seemingly every day. Does that mean we should worry? We don’t think so. The S&P 500 is trading at just a little more than the 20 year price to earnings multiple average of 15.9. It is possible for the market to continue to move up without expanding the multiple if corporate earnings accelerate. The last 8 years we have had GDP growth consistently below 3%. Corporate tax reform alone being proposed by the incoming administration could boost earnings by as much as 20% according to some experts.
Wednesday, January 18, 2017 9:08 AM
In William Shakespeare’s The Tempest, the dastardly Antonio implores Sebastian to kill his own brother, the King of Naples, by convincing him that “what’s past is prologue.” Antonio, who had 12 years earlier usurped his own brother, the Duke of Milan, by casting him and his young daughter out to sea in a rickety raft, certainly had a wicked way of fulfilling his political aspirations. As I write this and think about adjectives that best describe 2016, I just keep coming back to the word tempest – a violent windy storm.
With the worst start on record for the S&P 500, 2016 could certainly be described as having opened as a violent and windy storm. Amid a turbulent sea of Fed uncertainty, flagging oil prices, economic weakness in China and the first interest rate hike in a decade, by February 11th, the S&P 500 had lost almost 11% of its value. Things settled down quite a bit through spring and into early summer, as the market regained its earlier losses and even snuck briefly into the black. But this, as it turns out, would be the ‘calm before the storm.’ Much as Antonio convinced Sebastian to kill his own brother, Boris Johnson and his colleagues convinced the British people to kill their relationship with the European Union. In dealing a staggering blow to the political status quo befitting a Shakespearean drama, ‘Brexit’ also hit the stock markets like a tsunami. US stock markets declined by more than 5% in just four days, though they showed their resiliency by recovering shortly thereafter. International stock indices would never quite recover.
As echoes of The Tempest reverberated throughout the year, Antonio’s coaxing “what’s past is prologue” would prove to be amazingly prescient. As if merely the introductory act, setting the scene for the drama that lay ahead, ‘Brexit’ was only the beginning of 2016’s political upheaval. I am of course talking about Donald Trump’s staggering defeat of Hillary Clinton. Just after midnight on November, 9th, as polls across the country tallied their votes, stock market futures sold off by almost 900 points as the world came to grips with undoubtedly one of the largest political upsets of all time. In defiance of the experts and pundits however, U.S. stock markets managed to reverse course later that same day, with the Dow Jones Industrial Average rallying 257 points to close within striking distance of an all-time high.