Should I Rollover My Employer Retirement Plan?
When planning for retirement, it’s crucial not to set and forget critical decisions. Partnering with a financial advisor who understands your options and takes the time to know your specific situation is key to a successful retirement.
One major decision involves the management of your existing retirement accounts. As you navigate career transitions or are nearing retirement, it’s essential to weigh the pros and cons of your options.
For example, if you are considering a rollover from an employer-sponsored retirement plan, it’s prudent to examine your options before making a decision.
Keep the assets in the retirement plan.
Roll over assets to another employer plan.
Roll over assets to an IRA.
When assessing the pros and cons of rolling over assets into an IRA, it's essential to consider a range of factors, including but not limited to:
What are the fees and expenses?
What services are you receiving?
What investment options are available?
Can you make penalty-free withdrawals?
How would this affect your future required minimum distributions (RMDs)?
Are there any concerns regarding protection from creditors and legal judgments?
Are there any special features in your existing account that you’d lose?
If you have employer stock holdings, how would this be affected?
It’s important to carefully consider this decision because both IRAs and employer plans have distinct advantages.
Advantages of an IRA:
You can consolidate required minimum distributions (RMDs).
IRAs offer better tax-bracket management, as withholdings are optional, whereas a 20% federal withholding is mandated with some employer plans.
IRAs can provide flexible distribution options, simplified administration, and Qualified Charitable Distributions.
Multiple IRAs can be created and used for a mix of beneficiaries.
IRAs generally offer a wider range of investment options.
Roth conversions are allowed at any time.
All funds can be under one umbrella and simplify management and administration.
The 10% early withdrawal penalty can be waived on qualified distributions for higher education, first-time home buyers, or health insurance (if unemployed).
Advantages of the employer plan:
Plan assets are protected from bankruptcy and other judgments. Assets rolled into an IRA that can be traced to employer plans have federal bankruptcy protection, but have limited protection against other judgments, lawsuits, or claims. Your resident state sets the non-bankruptcy protection limits.
You typically can borrow from your employer’s plan and life insurance can be held in the plan.
Typically, RMDs can be delayed until retirement.
If you are 55 or older (50+ for public safety employees) and have separated from service, plan distributions are not subject to 10% early withdrawal penalties. If rolled into an IRA, this benefit is delayed until 59.5.
The net unrealized appreciation (NUA) rules apply to employer stock within the plan. Employer stock liquidated and rolled over loses these unique tax benefits.
Each rollover decision is unique to your situation. Working with a financial advisor helps you weigh your options and make the best decision for your financial situation.
Need help determining if you should roll over your employer plan? We’d love to help. You can contact us here or schedule a call with Evan today.
Please read important disclosures here.
