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401k Rollovers: Employees Have Options in the face of Termination
Even if a layoff is not eminent, knowing about options can reduce the stress that is caused by uncertainty. Knowing the options takes some of the mystery out of rolling over proceeds from a 401k account. A rollover provides more choices and more control to the account owner.
401k Plans: Why Not to Take a Disbursement
Although it might seem that a disbursement is a good idea at layoff time--considering that money might be hard to come by while bills continue to roll in--it is usually the worst possible choice. First, nearly every 401k plan has been hit hard by the down economy, with many account balances down 50 percent or even more, so half of the saved money has evaporated (as is well known by anyone who has dared to look at his or her statement lately). Subtracting up to 35 percent in taxes and penalties from the remaining 50 percent, leaves the remaining amount looking like a pretty trivial safety net.
Should Money be Left in an Employers 401k Plan?
Leaving funds parked in an employer plan is certainly the easiest thing to do, if that is an option. Theres nothing to think about, no paperwork to complete, and no decisions to make. However, continuing to participate in a 401k plan sponsored by a former employer might not be the wisest option financially.
First, the existing 401k might be underperforming--even among low performing vehicles. Second, most 401k plans have a limited set of investments to choose from, so there might not be much that can be done to improve performance if the 401k is not well managed overall. Exiting the plan can give account holders more choices and better control of their retirement assets. On the other hand, if the 401k plan is performing well, but remaining in it is not an option, the management company may have an individual 401k plan or IRA that is worth exploring.
Choosing a 401k Rollover Option
Those looking to rollover a 401k account should begin with a big picture overview of management companies performances and market trends by scanning websites like www.morningstar.com and the Wall Street Journal--then drill down on the companies that look promising. Most sites have tools of all kinds that compare their offerings to help with purchase decisions.
Checking out the differences among Individual 401k, SEP, Roth, and other Individual Retirement Accounts (IRAs) is recommended. A financial planner or tax advisor can help with the process and should be consulted if available. Getting help from a professional advisor may be negotiated as part of a termination package, so employees should be sure to inquire.