Category Archives: Retirement

How to Roll 401(k)s from Former Employers

Maximizing Your Retirement Strategy for GenX and More

In the era of mixtapes and MTV, you mastered the art of the rewind button while wearing neon-colored clothing and jelly shoes. Of course, you rocked a scrunchie and knew your way around a can of Aquanet. Fast forward and here you are enjoying the bold strokes of professional success including homeownership, a savings account and perhaps a number of 401(k)s from your greatest hits list of different employers. As you stand on the cusp of new transitions, envisioning a retirement that rocks as hard as your favorite tune from Duran Duran or Bon Jovi, it’s essential to make sure that every piece of your financial portfolio is tuned to perfection.

The Importance of Rolling Over 401(k)s

Your 401(k) accounts from previous employers represent valuable assets that can significantly impact your retirement nest egg. By consolidating these accounts into a single, cohesive retirement plan, you gain greater control over your investments, streamline portfolio management, and potentially reduce fees—all essential components of a robust retirement strategy. Let’s not sidestep these sleeper hits!

How to Execute a Rollover

  1. Assess Your Options: Begin by assessing the status of your 401(k) accounts from former employers. Evaluate the investment options, fees, and performance of each account to determine whether a rollover is warranted.
  2. Select Your IRA Provider: Choose a reputable financial institution to serve as the custodian for your IRA. Consider factors such as investment options, fees, and customer service quality. Vanguard, Fidelity, and Charles Schwab are renowned choices known for their stellar offerings.
  3. Initiate the Rollover: Contact your chosen IRA provider to initiate the rollover process. They will guide you through the necessary paperwork and facilitate the direct transfer of funds from your former employer’s 401(k) accounts to your new IRA.
  4. Review and Adjust Investments: With your rollover complete, review your investment options within the IRA. Consider your risk tolerance, financial goals, and retirement timeline when allocating your assets. Regularly monitor your portfolio and adjust as needed to stay on track.

Benefits of Rollovers

  • Consolidation: Consolidating multiple 401(k) accounts into a single IRA simplifies portfolio management and enhances visibility into your retirement savings.
  • Greater Control: IRAs offer a broader range of investment options compared to many employer-sponsored 401(k) plans, allowing for more tailored investment strategies.
  • Cost Savings: IRAs often feature lower fees and expenses than 401(k) plans, potentially increasing the growth of your retirement assets over time.

What to Consider Before You Roll Over Your 401(k)

  • Loan Provisions: Evaluate whether you may require access to funds through loans in the future. While some 401(k) plans permit loans, IRAs generally do not offer this option.
  • Early Withdrawal Penalties: Be mindful of potential penalties for early withdrawals from IRAs before age 59½. Some 401(k) plans offer penalty exemptions for certain circumstances, such as first-time home purchases or educational expenses.

Turn up the volume on dormant accounts to ensure your retirement plan is as harmonious as the melodies of Rick Astley and make sure that you never give up (sorry, we had to!) the opportunity to optimize your retirement strategy. By consolidating these assets into an IRA, you gain greater control, streamline management, and potentially reduce fees, setting the stage for a more secure and comfortable retirement.

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Life Insurance vs. Roth IRA for Retirement

Mark Fitzpatrick of recently asked about insurance vs. Roth IRA for retirement. Here’s what I shared with Mark:

Our research indicates some consumers are considering whether to fund a Roth IRA or permanent life insurance to plan for retirement. Why might they be making this comparison?

The Roth is a retirement account specifically designed for retirement savings; alternatively, life insurance provides income to dependents in the event of your passing.

How do the contributions and contribution limits for a Roth IRA compare to premium payments for life insurance?

In this scenario, one would be comparing apples to oranges. I would encourage consumers to first determine their goals and then find the right tools to accomplish them. Both are useful in the right context, but I would not necessarily promote the use of life insurance for retirement unless there was a compelling reason.

For the typical consumer who’s not eligible for a Roth IRA, but isn’t ultra wealthy, how would you recommend they employ these products? Would you recommend one over the other or some usage of both?

Most consumers have employer-sponsored retirement plans, so if they cannot contribute to a traditional IRA or Roth, they will have some plan available to them.

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