Pros and Cons of Rolling Over 401(k)s to a New Employer

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Rolling Over to a New Employer’s Plan:

Pros:

  • Consolidation: Rolling over your old 401(k) into your new employer’s plan can simplify your retirement savings by consolidating them into a single account, making it easier to manage and track.
  • Employer Match: If your new employer offers a matching contribution, rolling over to their plan can maximize your retirement savings by taking advantage of this additional benefit.
  • Tax Benefits: Continuing with a 401(k) plan maintains the tax-deferred status of your retirement savings, potentially offering tax advantages based on your future income.

Cons:

  • Investment Options: New employer plans may have limited investment choices, restricting your ability to diversify your portfolio according to your risk tolerance and investment preferences.
  • Fees: Depending on the plan, you might encounter higher fees, which can impact the overall growth of your retirement savings over time.

Helpful Tool: 401 Savings calculator

Rolling Over into a Fixed Index Annuity (FIA) with GLWB:

Pros:

  • Income Security: The GLWB feature guarantees a lifelong income stream, providing financial stability and peace of mind during retirement.
  • Market Participation with Downside Protection: FIAs allow you to benefit from potential market gains while protecting your principal from market losses, offering a balanced approach to growth and security.
  • Tax Deferral: Like a 401(k), FIAs offer tax-deferred growth, allowing your investment to grow without immediate tax implications.

Helpful Tool: Annuity Calculator

Cons:

  • Higher Fees and Charges: FIAs can come with higher fees for the insurance component and riders like the GLWB, which can reduce the investment’s growth potential.
  • Limited Liquidity: Access to funds in an FIA can be more restricted compared to a 401(k), with penalties for early withdrawals exceeding the free withdrawal allowance.
  • Complexity: The features and guarantees of FIAs can be complex to understand, requiring thorough research or consultation with a financial advisor to fully grasp their implications.

Making the Decision

Choosing between rolling over your 401(k) to a new employer’s plan or into an FIA with GLWB involves evaluating your financial situation, retirement goals, and risk tolerance. Here are key considerations for each option:

  • Growth vs. Income Security: If maximizing growth and taking advantage of an employer match are your priorities, rolling over to your new employer’s plan might be more beneficial. However, if securing a guaranteed income stream in retirement is paramount, an FIA with GLWB could be the better choice.
  • Investment Control vs. Simplicity: A new employer’s plan may offer simplicity in management but limited control over investment choices. An FIA offers a straightforward approach to earning potential and protection but with complexities in terms and conditions.
  • Fees and Accessibility: Consider the impact of fees and your need for liquidity. Higher fees in an FIA may be justified by the income guarantees and protection it offers, but ensure it aligns with your financial planning.

Helpful Reading: 401k vs annuity

It is advisable to consult with a financial advisor to navigate these options effectively. They can help compare the specific features of your new employer’s plan and the FIA with GLWB, aligning your decision with your overall retirement strategy for a secure and prosperous future.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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