The 101 on 401(k) consolidation
By John Napolitano
People accumulate many things over the course of their careers - knowledge, skill, friends, coffee mugs and 401(k) plans.
For the most part, gone are the days when people are employed at one or two places over a three or four decade span. You may have one position for ten years then move on a number of times. Before you know it, you have amassed a collection of separate 401(k)s and get a "gut feeling" each time you receive a statement that you may not be putting these retirement funds to the best use.
If your instincts tell you it’s time to take stock of these 401(k)s, then take the lead by consolidating all separate accounts. By combining all accounts, you will not only reduce the amount of monthly statement paperwork you receive, you will also have a clearer vision of how your retirement funds are allocated and performing.
One option of consolidation is to transfer accumulated 401(k)s into your present plan, if your current employer allows it. That route buys you some time to research investment strategies while your past and present 401(k) money continues to accumulate in one plan.
Another good choice is to roll over all former 401(k) plan funds to an IRA. This approach may be a more fiscally sound method of consolidation since you won’t be limited to the options in your current employer’s plan.
A rollover IRA will keep your investment growing tax-deferred. And keep in mind that rollover IRAs in general are not subject to as many rules and restrictions as retirement plans - simply put, you will have more access to your money.
And speaking of more money, you may be eligible for future contributions to a rollover IRA, up to $4,000 for this tax year and up to $5,000 if you’re age 50 or older.
Rollover IRAs allow for more investment options and may have lower management costs. Most banks, mutual find companies and brokerage firms have IRA rollover accounts that provide you access to more fund choices than typical 401(k) accounts.
Rolling over 401(k)s into IRAs can also have its advantages for your beneficiaries. Do you even remember who the elected beneficiary is of the 401(k) from that job you left ten years ago? Probably not, and my experience tells me that there is a high likelihood that the beneficiary election would change with only one minute of advice from a good professional. An IRA may also reduce your heirs’ tax liability by allowing them to take distributions over the course of a lifetime. And another point to consider relative to beneficiaries - they will have a much easier time managing your estate if all your retirement funds have been consolidated
You can go it alone and decide on your own rollover IRA investments, but you may wish to work with a reputable financial planner or investment firm should you decide to consolidate your retirement plan funds. You’ve worked hard over the years to accumulate these funds - by managing them wisely, the biggest payoff will be a comfortable retirement.
John Napolitano is president
and CEO of U.S. Wealth Management, Braintree, MA. 781-849-9200, www.uswealthcompanies.com
WBJ Web Partners
Most Recent
Most Recent
0 Comments