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Let’s face it, the days of receiving a gold watch for 30+ years of service to one company are so 1995. We’re living in a “move-on-to-move-up” culture and many of us have or will leave a trail of retirement plans in our wake. If you left your 401(k), 403(b) or other employer retirement plan behind because you’ve been busy and/or don’t know your options, we have summarized them for you, along with key considerations to help you weigh them. Note that there will be no tax implications for the options provided here.
Roll Over to an Individual Retirement Arrangement (IRA):
Once you leave your company (and in some cases, even before that), you have the option to roll your plan funds to an IRA.
Your old employer may allow you to leave your funds just where they are until you are ready to begin taking distributions.
If you leave your employer between the ages of 55-59 ½, you can avoid tax penalties (10% federal plus a state penalty in some states) if you withdraw funds. This option is not available with an IRA.
Roll In to New Company Plan:
Your current employer will likely allow you to roll funds into your new plan.
Consolidating accounts can help simplify the management of your retirement investments and your new plan may allow you to borrow funds in a pinch. This option is not available with an IRA.
Make an informed decision by comparing each of these important considerations for each option:
Employers may pass along some of the administrative costs of the plan to you as a participant and each investment option available has underlying expenses (known as expense ratios). An additional fee may also be charged if your plan provides for professional management. Compare all fees between your old plan, new plan and IRA options and assess the value of these fees. For example, if the expense ratios in Plan A are higher than Plan B, but Plan B has better investment performance (after fees), it may be worth the move to Plan B. Similarly, an IRA through an advisor may offer broader financial planning services that are worth an extra expense.
Performance & Risk:
Evaluate your investment options on the basis of performance (after-fees) and risk. Do not blindly accept the best performer as the ideal option, as the amount of risk in the fund may be outside your level of comfort in future years. Also, be sure to compare like investments. For example, compare a large-cap growth stock fund in Plan A to a large-cap growth stock fund in Plan B or an IRA.
Many employer plans have a limited number of investment options when compared to an IRA. Still, a comparison of fees, risk and performance should be done before deciding that more is more with an IRA.
Most employer plan types afford greater protection from creditors/lawsuits than if the funds are moved to an IRA. Depending on your circumstances, this may or may not be attractive for making the case to leave funds where they are or roll in to a new employer plan.