- You can roll it over when you leave. When you leave your employer, you can transfer your 401(k) plan to an individual retirement account, and it is not a taxable event. This type of transfer is called a rollover. Many 401(k) participants think any type of distribution from their 401(k) plan is taxable and subject to penalties. That isn’t true.
- Automated portfolios work. Most 401(k) plans today offer either a fund choice or an online interactive tool that will make the investment decisions for you. These types of automated portfolios are great choices. If it is a single fund, it may have a retirement year in the name of the fund, such as “Target Date 2030." In that case, pick the fund that corresponds with the approximate year you think you may retire. A single fund like this is a complete diversified investment that automatically allocates your money across many asset classes.
- Stable value funds are a good choice. As you get closer to retirement, you’ll want some of your retirement money in a safe investment option. Stable value funds, which are offered within many 401(k) plans, are a good choice. Today they are paying higher interest rates than bank savings. They won’t fluctuate like stock funds, and unlike bond funds, they shouldn’t go down in value if interest rates rise.
- Age 55 is special. Most people think that if they take a withdrawal from a 401(k) plan before age 59½, a 10 percent early withdrawal penalty tax will apply. This isn’t always true for 401(k) plans. There is a special provision in 401(k) plans for people who leave their employer after they reach age 55 but before they reach age 59½. This rule allows you to take withdrawals that are exempt from the penalty tax without having to use the substantially equal payment provision.
- Designated Roth accounts are great. More and more 401(k) plans are offering the ability to make Roth contributions. In a 401(k) plan, this is called a designated Roth account. Such contributions, unlike regular 401(k) contributions, are not tax-deductible, but they grow tax-free, and in retirement, your withdrawals will be tax-free.
If you’re not sure of the ins and outs of your 401(k) plan, it may be a good idea to schedule a no-cost, no-obligation conversation with a retirement professional at The Synergy Group so that you can ensure you’re headed in the right retirement direction.
- Posted: Dec 23, 2015