Retiring? Put Your Nest Egg to Work!
There are many exciting options to contemplate as you think about retirement. One of the most important choices is what to do about the retirement funds in your employer's retirement plan. The wrong choice could cost you unnecessary taxes or missed potential investment gains.
Here's a brief rundown of the two primary options you can consider when it comes to your nest egg.
Option 1: Stay put
Your employer may give you the option of leaving your contributions in the retirement savings plan. It's an easy option, and expenses may be low. Plus, you may have access to investment options within the plan that can help you secure lifetime income with a portion of your savings.
However, make sure that the choices available within the retirement savings plan and the accessibility to professional advice meet your needs during retirement. You also need to consider whether you have the discipline and interest needed to keep track of the investment options; after you leave them with your former employer. You should take that responsibility seriously.
Early retirees take note. There is one situation where it might be especially beneficial to let your nest egg hatch in your employer's plan. If you're retiring early you can start penalty-free withdrawals from the plan as early as 55. If you move the retirement funds to an IRA, you may have to pay a 10 percent penalty if you pull the contributions from an IRA before age 59-1/2.
Option 2: Move to a Rollover IRA
Many financial professionals recommend moving balances from your former employer's plan into a Rollover IRA. IRAs have an almost unlimited number of investment options, and because there's lots of competition, it can be easier to find an account with competitive fees. Again, as with leaving your savings in the plan, it's important to consider availability of an alternative that can help you secure lifetime income with a portion of your savings.
If there's any drawback to an IRA, it's that it presents you with so many choices. You must either create your own portfolio or find a financial professional, and then you still have to decide whether to pay taxes immediately and put the retirement funds into a Roth IRA or go with a traditional IRA and pay taxes as you take withdrawals.
A Roth IRA offers a couple of advantages: Your heirs won't have to pay any taxes on what they receive, and you won't have to take a required minimum distribution. With an employer's retirement plan or a traditional IRA, you generally will need to start withdrawing a minimum amount each year after you turn 70-1/2 or face penalties.
Option 3: Throw away 10 percent of retirement savings... NOT!
This one isn't really an option you want to consider because it can have disastrous consequences. You could take a cash distribution of the retirement savings held for your benefit. Do this, and you'll likely have to pay a 10 percent penalty in addition to income taxes on the amount.
Take the next step...
Enjoy guaranteed retirement income! Find out if an income annuity or a deferred annuity is right for you.
