Man of the Market

Insights from a Financial Advisor looking to help people on their path to financial wellbeing.

What You Should Do with An Old Retirement Plan

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Ryan

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Transcript

Hi, I’m Ryan Knoll. I am behind the Man of the Market blog and YouTube channel. I am a financial advisor and my goal is to help you make more informed financial decisions.

Have you ever wondered what happens to your retirement funds when you leave an employer?

For many of us a 401(k) or retirement plan left at a previous employer likely represents our biggest nest egg. This brief video go over the 4 options you have with retirement plans from a previous employer. Those options are.

4 Options

  1. Leave it there
  2. Roll it into a new plan
  3. Cash it out
  4. Roll it over

Leave It

Leaving your retirement funds in an old employer’s plan is a viable option. The money stays there and stays invested as it was previously. You can no longer contribute to the account but the money will grow based on how your underlying investments perform.

There are Pros and Cons to leaving it in a previous employer’s plan.

Pros

  • No taxable event because there is no withdrawal
  • Money stays invested
  • Generally a cheap way to invest

Cons

  • Your plan may have poor investment options
  • Your plan may move the money if it is under a certain dollar amount
  • You may pay fees you don’t realize you are paying

Roll Into New Employer Plan

You also have the option of rolling your funds into a new employer plan. If you left one job for another some employers allow you to roll money from other retirement plans into a new employer plan. This can be a great way to keep your retirement accounts all in one place.

Let’s talk about the pros and cons

Pros

  • Consolidates assets in one place
  • Can be cheaper than an old plan
  • Likely a few different investment options

Cons

  • Many of the same with Old employer plans
  • If not done right there could be a taxable event

Cash it Out

You also have the option to cash out of the plan and take your money. I would say that in very rare circumstances would this ever make sense. If the funds are traditional funds you will pay taxes on the distribution and if you are under 59.5 you will likely pay a penalty on those funds. In Roth accounts you will likely be responsible for just the 10% penalty.

Most people should avoid this option as it very rarely makes sense to do.

Roll It Into an IRA

Your final option is also the most popular option. That option is rolling it into an IRA.

Rolling your money into an IRA takes it out of an employer plan and moves it into a self-directed plan. This does not mean you have to manage it yourself if you are not comfortable doing it – you could also hire someone like myself to help.

Let’s go over the pros and cons

Pros

  • More investment options (you aren’t stuck with a list of a few mutual funds)
  • Professional Guidance
  • More transparent fees
  • Give you more control over your finances

Cons

  • May cost more
  • If not done right there can be a taxable event
  • You could do poorly if you don’t know how to invest

Wrapping It Up

To wrap things up today lets go over your 4 options again.

  1. Leave it in old plan
  2. Roll it to new plan
  3. Cash out (don’t do!)
  4. Roll to IRA (most popular)

Regardless of what you choose to do today you need to know you can choose any of these options down the road. Working with a financial advisor who can help develop a plan for your retirement savings will help you to make the best decision.

Thanks for watching!

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