Published based on Rollover for 401K Maximum or take 401K Withdrawal?
Rollover for 401K Maximum or take 401K
Withdrawal?
If you have been laid off or quite, you are usually faced with the option of whether you should keep your 401k
as is with your present employer for the 401k withdrawal balance or make a 401k withdrawal and roll it over to an
IRA. Studies show that only 3% of departing employees with account of less than $1,000 left money in their
former employers plans while nearly half of those with balances of $100,000 or more did so. Many employers will
force you to roll it over or take the money because the smaller accounts cost more to keep on the books. The
people with larger accounts usually leave it there because they dont know what choice to make. If you are faced
with this choice consider these facts:
Costs- According to a trade group, the average fee was 0.72% of assets annually. But if the plan has less than $1
million in assets, the median fee was 1.89%, compared with less than 0.50% for plans with more than $500 million
in assets. Larger plans can afford to offer you investment choices with lower fees, too.
Be sure to find out if your former employer is going to charge you an annual fee for keeping your funds. Even if
the fee is $100, thats no big deal on a large account but on a small account of $5,000 that is 2% that you would
need to make up in higher returns.
Investment Choices- Dont be swayed by brokers saying you will have more choices if you roll over. That may be
true but you dont need a lot of choices to get a diversified portfolio. Be aware of special funds in your employer
plan that you cant get in a brokerage account like some stable value funds.
Withdrawal Choices- Remember that the rules for a 401k withdrawal are different than an IRA. Many 401k
plans allow loans and IRA accounts do not. IRA and 401K accounts allow for people 55 or older to be able to
take penalty free withdrawals if they are laid off or if they leave their job. This can be a great option when
severance runs out or unemployment benefits end. This should be a last option since you want to get the
highest 401k maximum balance you can over the long term.
Roth Option- Instead of rolling into an IRA or your new employers plan, you also have the choice of
converting to a Roth IRA. This is especially attractive to those looking at paying a lot in taxes during
retirement. It is a difficult decision and you will have to pay taxable income on the 401k withdrawal amount you
roll into a Roth.
You can also find this article published on Rollover for 401K Maximum or take 401K Withdrawal?, and on
the tag pages balance, fee, free withdrawals, ira accounts, plan, stable value funds.
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