Cashing out is a bad idea. On each withdrawal you’ll have to pay tax (marginal rate) on the lump sum and a 10 percent penalty if you’re under age 59 1/2. It’s better to take distributions over many years to minimize the tax. Delaying withdrawals as long as you can also gives your retirement fund more time to grow.
 |
| retirement (Photo credit: 401(K) 2012) |
401(k) changes. Your 401(k) investment choices, trustees, and fees can all change at any time. If you don’t work there, you might not get the latest information as quickly as those who do. When these big changes are scheduled to occur, the employer usually holds information sessions to communicate the changes. If you don’t work there, these in-person sessions may not be available to you. If you don’t pay close attention to your 401(k) statements, you might not even know about the changes until after they occur.
More control. Most 401(k) plans have restrictions. My previous employer will not let me invest the employer contribution portion of my 401(k) account. This portion is invested in a “global diversified” investment that has no ticker. I’m not willing to live with these restrictions once I’m no longer an employee. I want total control of my investments, and that’s why I’m in the process of rolling over my 401(k).
Employer stock. It’s hard to believe, but many employees still have a large portion of their 401(k) invested in their employer’s stock. Some companies invest their employer contribution straight into company stock. This is a bad idea because there are too many eggs in that basket. If your employer goes out of business, you could lose not only your job, but also your retirement savings. Read up on Enron if you think investing in your employer’s stock is a good idea.
Better investment choices. Most 401(k) plans have very limited investment choices. Unfortunately, many of these funds are of the high fee and high expense ratio variety. If you roll your money over to an IRA, then you can invest in anything you want to. Some investors might want to invest in individual stocks, and that’s easy to do in an IRA. I’m more partial to low-fee Vanguard funds, and I can pick any of them in an IRA.
Consolidate and simplify. Workers who frequently change jobs can end up with several different 401(k) accounts if they don’t roll them over into an IRA. It’s much easier to check on your investments if they are all in one IRA instead of many 401(k)s. A single IRA also makes it much easier to revamp your investments. You will be surprised at how much in fees you are paying as your 401(k) balance grows. I found out I paid $1,754.91 per year in fees, and that’s not acceptable.
There are many things to deal with when you leave your job or career, but don’t forget about your retirement account. This could be your largest investment if you work with one employer for a long time.
Joe Udo is planning an exit strategy from his corporate job by reducing expenses and increasing passive income. He blogs about his journey to early retirement at Retire by 40.
By Joe Udo
Taken from: http://money.usnews.com/money/blogs/On-Retirement/2012/10/25/7-reasons-to-rollover-your-401k-after-retirement
No comments:
Post a Comment