Post-Retirement Options for Your 401(k) Plan

Your retirement may last decades, so it’s important to manage your 401(k) so that it lasts for the long run. The decisions you make regarding your 401(k) will impact whether the funds last through your lifetime. You have a number of options available, but each comes with its own benefits and important considerations.

You’ve spent years building up your nest egg and dutifully contributing to your 401(k) account. Retirement is fast approaching, so you may be in the process of making important decisions about your assets. Your 401(k) may be your single largest retirement asset, so what exactly will you do with it after you leave your employer?

If you’re contemplating what to do with your 401(k) once you retire, take a look at the three options below, which may help you determine the decision that’s right for you.


Option #1: Cash it out.

One possibility is to cash out your 401(k) and take your funds in a lump-sum distribution. The main advantage of this is that it gives you a potentially significant sum of money all at once, to do with whatever you please. There may be some big drawbacks to this route, though.

The money you receive when you liquidate the account is fully taxable, and you lose out on future tax-deferred growth that would come with leaving your funds in the plan. The potentially large taxable distribution could push you into a higher tax bracket. You may also have to pay an early distribution penalty if you are under the age of 59½.


Option #2: Roll it into an IRA.

With this approach, you get the money out of your 401(k) plan but avoid a taxable distribution or an early penalty. At the same time, it still allows you to take advantage of tax-deferred growth inside the IRA. Your IRA account will generally have the same tax treatment as the old 401(k) plan.

You may also have a wider range of investment options that allow you to better implement a strategy that aligns with your goals. For instance, you may be able to use things like annuities, which often aren’t available in 401(k) plans. They can sometimes protect you from downside risk and even provide a guaranteed* lifetime income stream.


Option #3: Keep it where it is.

You can simply keep the funds in your employer’s 401(k) plan if you choose. There’s nothing that says you’re required to actually do anything different with your 401(k) after you retire.

For some people, the simplicity and familiarity of this approach is a major advantage, as they just feel more comfortable leaving things as they are. This way you also avoid a tax hit on the funds or an early distribution penalty when you withdraw the money from the plan.

However, doing nothing with your 401(k) may put you at a disadvantage if you have limited investment options available in your employer’s plan. Remember, your goals and risk tolerance may change as you get older. You may find that your 401(k) plan no longer offers the choices you need to implement a strategy that helps you meet your goals.

It can also tend to complicate matters when you have other IRAs and investment accounts, as it may be difficult to manage a cohesive strategy with several accounts in several places. Additionally, consider that if you keep your 401(k), your finances may become less than ideally organized. When you pass away, it may not be easy for your beneficiaries to track down multiple accounts in different locations, creating the possibility that they may miss the 401(k) altogether. By consolidating accounts, you minimize that risk.

Want to learn more about IRA rollovers and other options for your 401(k)? Let’s talk it over. Give us a call to speak with one of our retirement planning professionals today.


*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.


This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

16295 – 2016/12/19

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