3 Key Strategies to Optimize Your Rollover Savings! By: Mathew BarberAIF® 2017.11.29

At Westminster Workplace solutions we work with employees and their retirement dollars.  Surprisingly…or not, we see many of the same mistakes and questions from a majority of our clients.

Before I dive right in, when I say retirement accounts what does that mean and why is it such a big deal?  There are a number of different types of retirement accounts and they all have their own set of rules and scenarios where they are more advantageous.  We will focus on the most popular types of accounts and how you can use them to help grow your retirement savings. 

With people changing jobs on average 12 times during their careers nowadays there is the potential for you to have at least 12 different times during your career when you need to make decisions around these accounts.  If that’s not enough of a reason, employers are quickly getting rid of guaranteed income sources like pensions and the future of social security viability is always in question.  So, the burden of saving enough money for retirement is more and more on individuals.

The 1st Key: Don’t feel pressured to make a decision.  For most employer plans, if you have accumulated less than $5,000 then your previous plan will send you a check a couple weeks after you’re no longer with the plan.  Once you receive that check you have another 60 days to reinvest that money before you are in any danger of causing a taxable event or penalty scenario for your money.  If your account is above $5,000 then your plan will probably allow you to stay right where you are until you can make an appropriate decision.  So take a breath, do some research, you have some time.

This research leads us to The 2nd Key: Where, if anywhere, is the best place to move my retirement money.  For many people, but not everyone, it makes sense to look at these 3 options:

  1. Do I keep my money in my former employer’s plan?
  2. Do I roll my money into an IRA?
  3. Do I roll my money into my current employer plan?

Don’t over complicate this process, take it step by step.  The first question you need to ask is, does it make sense to keep the money in an employer plan or is it best to roll it into an IRA.  This decision is made by weighing what’s more important for you, lower fees or more investment options.  While 401k’s have lower fees traditionally, you are limited to the investment options inside the plan.  An IRA allows you to put your money into almost any type of investment but almost always is higher in fees.

After that question has been answered then follow that path (Employer Plan or IRA) and make decisions around that.  If you’ve decided that an employer’s plan is best then it’s time to decide whether to keep it with your former employer or to move it to your new employer.  With fees being more and more transparent and accessible these days it’s easier to make this decision.  Most employer plans are going to cover all the basics of where to invest so the real question is how much are the expenses in each account.  Super-secret industry tip here; the same fund in two different employer plans can cost you completely different amounts.  Why pay more for the same thing? 

If you choose to move the money to an IRA there are a lot of options and therefore decisions to be made.  The biggest decision for the people that we’ve worked with is, should they have someone manage their money for them.  With everyone knowing someone that claims to be a “financial advisor” these days, this can be an emotional and complicated decision.  Look for a piece from us soon on how to choose an advisor.  In the meantime, if you’re interviewing advisors (which we recommend) you want to ask questions about; How they get paid, How they run their practice, What is their investment process and what is their office contingency plan in case something happens to them.

The last and possibly most often overlooked detail to managing your retirement accounts is small but very important.  The 3rd Key: Make sure if you’re rolling money into an IRA that the account is set up as a ROLLOVER IRA not a TRADITIONAL IRA.  These accounts are similar in countless ways however in one very important instance they are different.  If you roll money into a Traditional IRA that money cannot later be moved back into an employer plan but if your account is a Rollover IRA you will have that option later on. 

Picture this, you’ve just left a job and rolled money over to your IRA thinking that it’s a better option than your new employers plan.  But five years from now you land the job of your dreams with that super cool, trendy company with the values in an employer that you’ve always wanted!  You take a look at the retirement plan that they have and of course, they offer an amazing variety of investments and it is so inexpensive that you think you’re not reading the numbers correctly.  So you say great, I am going to roll my current plan into the new plan and that IRA makes sense to move over now too!  Well unfortunately, because the account was set up as a Traditional IRA you no longer have the opportunity to move that money into the new awesome plan with the low fees and great investments.  Obviously that’s a little over dramatized but situations like that happen every day and people miss out on the opportunity.

Retirement accounts are very important and often misunderstood.  If you have questions about this article or anything else related to personal finance send me an email at: mbarber@westminster-consulting.com.

Mathew Barber

Mathew is a Senior Consultant at Westminster Consulting, where he is responsible for the firm’s personal advice and employee education programs.

Mathew leads the firm’s participant education and advice initiative, Westminster Workplace Solutions. Additionally, he develops and promotes Westminster...

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