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401(k) Rollovers

Many employers sponsor 401(k) retirement plans and match a portion of the funds you contribute from your earnings for retirement savings. What happens when you change employers or retire?

If you’re at this juncture in life you have four options:

  1. Complete a 401(k) rollover to an Individual Retirement Account (IRA). In many circumstances this is the best option. It allows investor to continue compounding tax deferred and maintain maximum control asset allocation. In many cases this option can reduce expenses by consolidating administration fees of having multiple plans. 401(k) plans can be a rollover into IRA accounts with Farmers & Merchants State Bank or to an LPL brokerage account.
  2. Complete a 401(k) rollover to new employer plan. In some cases is best option as it is simplest. However if you are unsatisfied with the investment choices available to you, completing a rollover to an IRA may be the better option.
  3. Leave the assets with former employers plan. While this may be a convenient option beware administrator can charge record keeping fees to manage your account. This can be expense option especially if you have accounts with more than one past employer.
  4. Take the cash. In most every situation is absolutely the worst choice. You will pay taxes on contributions and earnings which had been tax deferred to this point and an addition 10% excise tax. The additional 10% tax is Congresses way of telling you “you’re making a bad choice”. Far worse than the tax consequence is future financial loss that comes from decades of tax deferred compounding. Even small account balances early in ones career are worth the rollover option.

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