Sometimes It Makes Sense Not To Rollover Your 401(k)

Many financial prestidigitators will have you believe that everyone who leaves an employer must rollover their IRA. This is not true. There are many instances, especially in today’s economic times, that leaving the 401k at the employer makes sound financial sense.

I should explain that there are many more good reasons why someone should roll over their 401k and keep their money close to them.  A few of those reasons are: In most cases there are greater investment choices, lower costs, estate planning considerations and eliminates the corporate uncertainty of plan and investment menu changes.

The two prime reasons why someone should not roll their 401k over are (1) Early Retirement Income withdrawals available in most plans at age 55 with no 10% penalty and (2) the ability to borrow from a 401k plan up to 50% of the assets and payback over 5 years.

Anyone who needs income or access to cash prior to age 59 1/2 may be better off keeping their plan at their previous employer.

Once someone rolls their 401k into an IRA they are unable to take a systematic income out of their plan without paying a 10% penalty if they are under the age of 59 1/2 unless they are disabled or if they construct a 72(t) plan. There are no borrowing choices available in an Individual Retirement Plan.

It is always a bad idea to dip into retirement plan money before retirement. However, having the ability to start systematic income without a penalty or being able to borrow funds and payback when things get better makes sense.

While most plans do have early retirement and loan features it is essential to confirm this. Of course there are a different set of significant problems once someone starts taking early retirement income or a loan and then wants to rollover their 401k plan. Investors should only do this after getting all the facts from the plan administrator and personal financial advisor.

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.