As you near retirement you have to decide if you are going to keep your money in the 401k or move it to an IRA. Which is right for you and your needs? There are a few questions to ask to help you decide on an action plan. How much flexibility does your 401k account give you in comparison to an IRA? You need to know so that you can make the smart choice for your retirement nest egg. Many 401k plans allow only for a systematic and proscribed withdrawel of money, based on the fund balance and your life expectancy. Check the 401k rules. In addition, many funds allow only a prorated withdrawal from across the whole account instead of allowing the pinpoint use a a single fund. If flexibility in this area is important, if for instance the 401k fund is going to be your main source of income, you may want to execute a 401k rollover/IRA. Perhaps you’d like the security of an annuity. Your 401k might have that option and you may want to tap it. Make sure you ask about the payment plan attached to the annuity, while you are talking with your Benefits admin. It may not be the best option for your situation.
Some people find that a 401k rollover to IRA better suits their needs. Mainly because then you control when you get money. Setting up a monthly draw based on a dollar amount or a set percentage of the fund’s value is all in your hands, not a fund manager. You may decide to portion part of the IRA as an annuity. This could be the peace of mind you’ve been lacking with your retirement account. You can even give peace of mind to your heirs because of a recent change to the tax laws. They will be able to roll the 401k money to their own IRA instead of taking a lump sum, with the accompanying tax hit. More than ever, we have control of our estates. It is nice to know that your children can add to their retirement accounts with your money.
While leaving your money in a 401k is convenient, it is probably not your best option. If it is a secondary or even tertiary retirement account, then leave the money in the 401k. Otherwise, the better option is to get the money into an IRA where you are in the financial driver’s seat.