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I’m Retiring, What Do I Do With My 401(k)? You have 4 options, but only 3 is good.


You have to make many decisions in retirement, and among the biggest ones is what to do with your workplace retirement savings. Regardless of how much money you have or how you plan to invest it, you must first choose where your nest of eggs will live.

You have four basic options.

  • Stay in your master’s plan and let the money grow until you have to start working on it Mandatory minimum distribution (RMD).

  • Stay in your employer’s plan while making your installment payments.

  • Transfer assets to an IRA at an institution of your choice.

  • Take the account balance in cash and pay taxes on the distribution to spend, or roll it into a Roth IRA.

Good news, follow Recent research from Vanguard, is that most of those who faced this decision for more than 10 years, from 2011 to 2021, were able to preserve their retirement money. Seven out of 10 people keep their assets in a tax-deferred environment, and 90% of the money is still invested and has probably grown a bit. Average balances range from $239,300 to $418,900.

“More and more investors are on track for a good accumulation experience. We are seeing improvements,” said Matt Brancato, chief client officer at Vanguard Institutional.

However, Brancato adds, “average doesn’t tell you about personal experience.”

And for that, you have to look at some less good news, which is that Vanguard has found that 30% of their savings are withdrawn by age 60 or older, most with smaller balances. The average amount of these accounts is $39,700. Some may simply save less, and some have been on the company’s plan for a short time, so haven’t accumulated a large sum.

Risk of cash withdrawal

Withdrawing cash with a small balance may not seem important to you at the time. The account can be one of many that you have, and the tax burden doesn’t seem to be too much for you to bear. Or you may intend to pay income tax on the distribution and Transfer money to Roth IRA in one conversion. Or cash can be attractive – and then it disappears.

“First of all, ‘small’ is a relative term,” says Brancato. “The amount should be commensurate with the intention. It is a highly personal decision.”

An important step if you’re thinking of cashing out is to consider how the amount involved could grow over time and add to your retirement income later on. If your balance is now $39,700 and you think that’s not much, it could be $78,000 in 10 years, if it grows at 7%.

In Census, another major retirement plan manager, they show those numbers to people as they make decisions that will affect their retirement savings, such as reducing their 401(k) contributions. ) their. “We come up with a very quick estimate to connect the dots between seemingly small sums of money and much larger sums that you will have to give up in retirement,” said David Musto, CEO of Ascensus. “. After seeing that information, “30% of people ended up choosing not to drop their 401(k),” he added.

That same kind of information can also help people make a decision between continuing with a work plan after retirement or transferring money to a rollover IRA. While most end up moving money into their own accounts within 5 years, Vanguard research shows that the numbers are rising for people who stay in their planned workplace even after they retirement.

Brancato sees the driving force behind that as flexible plan design, financial wellness advice and tools that can be part of an employer’s package. For example, if you want to use your coins before having to use RMD, your plan will have to allow that, and Vanguard notes that the number of plans offering this service has nearly doubled in the last 5 years.

“It’s getting more and more retiree-friendly,” Brancato said.

Do you have questions about the mechanics of investing, how it fits into your overall financial plan, and what strategies can help you get the most out of your money? you can write to me at [email protected].

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