Making the Most of Retirement Account Rollovers

As you approach or navigate retirement, managing your retirement accounts becomes a pivotal aspect of your financial planning. This guide aims to provide a clear and practical overview of the key decisions you may face, particularly when it comes to handling existing retirement accounts. Whether you're changing jobs, retiring, or facing major life changes, understanding your options and their implications is crucial.

Managing Retirement Accounts: A Critical Decision Point

The decisions you make about your retirement accounts can have long-lasting effects on your financial well-being. It's important to consider:

1. Consolidation: Combining multiple accounts for simplicity and potentially better management.
2. Concentration: Assessing the diversity and risk of your investments.
3. Timing: Deciding when to make changes based on tax implications and market conditions.

Consulting with a fiduciary financial advisor who understands your unique situation can greatly aid in these decisions.

Evaluating Your Rollover Options

If you're considering a rollover from an employer-sponsored retirement plan, think through these options, all of which maintain tax deferral:

1. Keep assets in the current retirement plan.
2. Roll over the assets to a new employer’s plan.
3. Roll over the assets to an Individual Retirement Account (IRA).

Factors to Consider When Rolling Over to an IRA:

1. Fees and Expenses: Understand the cost implications of the IRA.
2. Service Levels: Evaluate the support and advice available to you.
3. Investment Options: Consider the variety and suitability of investment choices.
4. Withdrawal Rules: Understand the regulations around withdrawals, including penalties.
5. Required Minimum Distributions (RMDs): Factor in RMDs in your planning.
6. Creditor Protection: Assess the level of protection from legal judgments.
7. Special Features and Employer Stock: Consider any beneficial features of your current plan.

Advantages of IRAs vs. Employer Plans: IRAs offer:

1. Aggregated RMDs: Flexibility in satisfying RMDs from one or multiple IRAs.
2. Tax-Bracket Management: More control over tax withholding.
3. Estate Planning Flexibility: Easier to appoint different beneficiaries.
4. Wider Investment Choices: Access to a broader range of investment options.
5. Roth Conversions: Facility to convert to Roth at any time.
6. Simpler Consolidation and Portability: Manage all retirement funds under one umbrella.
7. Special Withdrawal Provisions: Certain penalty waivers for qualified distributions.

Employer Plans offer:

1. Federal Creditor Protection: Stronger protection from bankruptcy and other judgments.
2. Loan and Insurance Options: Ability to borrow and include life insurance.
3. Delayed RMDs: Possibility to postpone RMDs until retirement.
4. Penalty-Free Early Distributions: Specific conditions allow for early withdrawals without penalties.
5. Special Rules for 457(b) Plans and Divorce Distributions: Unique benefits pertaining to early withdrawal penalties and divorce settlements.
6. Net Unrealized Appreciation (NUA) Rules: Tax advantages for company stock within the plan.

Conclusion:

Your decision on how to manage your retirement accounts should be tailored to your specific situation. As fiduciaries, our role is to help you weigh the pros and cons so that you can make an informed and prudent decision. For a deeper dive into these considerations, please refer to the resources provided below.