If you’ve recently changed jobs or unwillingly been “relieved of your duties”, you likely have a lot of questions about your benefits. This post is going to tackle one of the most common questions I hear regarding benefits, which is “what do I do about my old 401(k)/403(b)/SIMPLE IRA/etc.?”

The choices available to you will depend on your present situation. Factors such as age, employer benefits, and life needs will all need to be taken into consideration. There are also potential tax ramifications if you are not careful with how you approach your rollover.

What are your options?

You could…

• leave it where it is and rebalance it

• roll it over into an IRA

• roll it over into a new employer’s retirement plan

• withdraw it as a lump sum

As stated already, there may be other options available to you, but these are the most common ones available.

If after reading this you would like to thoroughly discuss your specific options, please give me a call or schedule time with me.

Leave it where it is

Often overlooked by many professionals is simply the option of leaving retirement assets where they are. This does limit your investments to the limited selection of plan investment choices, but if you have an employer-sponsored account that is cheap and has good investment choices that fit your needs, do you need to go elsewhere? Simply keeping your investments appropriately allocated to your risk tolerances may suit as a solution appropriate at this stage of your life.

You can then move the funds at a later date, which buys you some time if you’re in a period of transition and have one less decision to make. Plan sponsors do have some room for customization on their plan rules, so ensure that you have reviewed what implications this option may mean for you. If you have a smaller account balance (commonly a figure under $25,000), the sponsor may roll you into an IRA automatically at the custodian if you do nothing.

Rolling into an IRA

The most popular option that people opt for when they’ve got an old retirement plan is to roll it into an IRA. This affords them the ability to choose how the funds are invested more intricately, provides a bit more of a sense of control, and keeps it growing on a tax-deferred basis.

One strategy moving the funds to an IRA affords you is the opportunity for taking advantage of Roth Conversions, if appropriate for your tax situation.

There are multiple ways to actually accomplish a rollover (direct, indirect, trustee-to-trustee), and each has its own tax rules for proper processing. Ensure that you are taking the right steps to avoid unintentional tax consequences.

The IRS has created this handy rollover chart to indicate which account types can be rolled over to another.

This is another point where I will remind you that there are lots of specifics underlying each rollover decision, such as the two-year rule for SIMPLE IRA’s and only one indirect rollover in any 12-month period. There are countless other restrictions and you need to understand the implications of a rollover before you complete one.

Move it to your new employer

This is one of the less popular options out there, but it may be appropriate for your needs. It is also fully dependent upon the structure of the plan if they allow incoming rollovers, so speak review the plan documentation prior to expecting this as an option. It is similar to the first option of leaving it alone, but if your new employer plan offers good investments at a reasonable cost, it may make sense to take advantage of it.

Taking a distribution

I call it the “take your money and run” option. Tax-savvy individuals will typically cringe if they hear you considering this option. After all, you’d be giving up tax-deferred growth and potentially incurring income taxes and an early withdrawal penalty of 10%. But, sometimes there are reasons for this to be considered, and it is often only done with part of the assets (for the very purpose of maintaining the tax deferred growth of as much as possible).

There are a myriad of reasons where this could make sense in your situation (such as needing to clear up debts), but you should always consider a cost-benefit analysis prior to doing this. Broadly speaking on the topic of taxation, if you don’t have a qualifying event or are over 59 1/2, you’re going to be penalized. There are also instances where penalties wouldn’t apply, but a thorough review of your situation is necessary before that can be determined.

Now what?

Even if you’re thinking you’ll leave your funds right where they are at, don’t forget to consult your plan. A solid financial plan will keep yourself accountable to your long term goals and ensure that the decisions you’re making are in alignment with your personal financial goals.

Don’t have a financial plan? Get started by building your own plan for free or schedule time with me to discuss your needs.

Further reading about this topic can be found on the IRS website: https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions