Does a Rollover Make Sense for You?

From SunAmerica Asset Management Corp.

Know what options are available to you before you move your assets.

Once you’ve reviewed your retirement account, the next step is to ask yourself if you are satisfied with the investment performance, income options and legacy planning capabilities in your current IRA or plan. If your answer is yes, you may not need to make any changes. If your answer is no, then you’ll need to weigh the benefits of withdrawing or moving your assets to another investment vehicle.

3 Key Options in Times of Transition

  1. 1. Leave your assets in place

This is the easiest course of action to take, but think twice before going down this path, especially if you're changing jobs and leaving the assets in your former employer's plan. Once you leave the company, you won’t be able to contribute additional money into the plan. Plus, you may have limited investment options, income flexibility and you may not be able to stretch the income over your beneficiary's lifetime.

 

  1. 2. Take out cash

If you need money, it’s tempting to withdraw cash from your IRA or plan. But withdrawing cash from a retirement account can be very costly in terms of taxes. You may have to pay:

  • Federal income tax of up to 35%
  • State income tax of up to 9.5%
  • 10% penalty if withdrawals are taken prior to 59½

Plus, if you’re taking income from an employer-sponsored plan, 20% of your withdrawal amount will be withheld and applied to your federal income tax. You’ll also lose out on the opportunity to compound your money tax-deferred on any assets that you take out from the IRA or plan!

 

  1. 3. Move your assets to another IRA or plan

If you’re concerned about the investments in your current IRA or want more flexibility than your employer-sponsored plan allows, you have the option to move your assets to an IRA or plan that can provide you with more benefits and features (this is generally known as a “rollover”). The Internal Revenue Code allows rollovers between certain types of IRAs and employer-sponsored retirement plans, known as eligible retirement plans. Eligible retirement plans include IRAs, 401(k), 403(b) and governmental 457(b) plans. 

 

Talk to your financial advisor about what strategy may be appropriate for your situation.