In this episode of Ready for Retirement, James discusses what you should do with your 401(k) when you retire.
Questions Answered:
What are the best ways to reduce fees in a 401(k)?
Should you move your 401(k) elsewhere?
How can your overall retirement strategy be improved?
Timestamps:
00:00 – Introduction
1:45 – Listener Question
3:23 – 401(k) Hidden Fees
7:52 – Gaining More Control
9:45 – Investment Options
13:40 – Clunky Planning
17:03 – After-Tax Contributions
21:05 – Net Unrealized Appreciation
24:02 – Tax Treatment
26:08 – Age Importance
29:50 – Working With Us
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As you near retirement, it’s important to consider what you should do with your 401k. This retirement plan is designed to help you save for your golden years through pretax contributions from your income. But determining how to use those funds after you’ve stopped working can be a challenge. Here are a few options to consider.
Leave the Funds in Your 401k
One option is to leave your money in your 401k. If you’re happy with the investment choices offered by your employer’s plan and don’t need to withdraw the money right away, leaving it untouched may be the most straightforward option. You won’t owe taxes on the funds until you start making withdrawals, and you can still make investment choices within the plan.
Roll Over Your 401k to an Individual retirement account (IRA)
Another option is to roll over your 401k into an individual retirement account or IRA, which can offer more investment options than your employer’s 401k plan. With an IRA, you also have the flexibility to do a Roth conversion, where you can convert a traditional IRA to a Roth IRA and pay taxes on the funds upfront. This can be beneficial if you expect to be in a higher tax bracket when you start withdrawing funds.
Take a Lump Sum Distribution
You may also choose to take a lump-sum distribution of your 401k funds. This involves withdrawing the entire balance of your account and paying taxes on the full amount. While this option can give you control over your money, it also comes with significant tax implications. Withdrawals made before age 59 ½ may also come with a 10% penalty, unless an exception applies.
Take Periodic Withdrawals
A fourth option is to take periodic withdrawals from your 401k. You can choose to take required minimum distributions (RMDs) at age 72, or you can start taking periodic withdrawals earlier. However, it’s important to note that taking withdrawals from your 401k will reduce the account balance and could affect your future retirement income.
Ultimately, the best option for what to do with your 401k when you retire depends on your individual financial situation and your personal preferences. It’s important to consider all the options and seek advice from a financial advisor to help you make an informed decision that aligns with your goals for retirement.
Spend it, enjoy it!
My husband is 56 and would like to retire at 62. He is maxing out his 401 k every year and the company matches almost half of the maximum contributions he puts in. I don’t know what will happen retiring in this financial crisis. I don’t know if we can recover. We have lost a lot already.
Option I thought up, that my Fidelity accountant thought was brilliant (in my case). I split my 401K in 2 at age 62. 50% went into a fixed Income Annuity that will build for 15 years, 50% went to a 15 year Certain Income Annuity that will pay out 8.92% – 15 years of payments until it draws down. At that time, I will convert the Fixed Income Annuity TO another 15 year Certain Income Annuity to replace the other. This strategy isn't for everyone, but works for me.
This Roth 401k is deferred tax , but there are taxed Roth 401k.
If I put $30,000 for regular 401K in 2023, but I still need to pay Social Security and medical tax for $30,000, correct?the only saving is no federal and state tax.
But if I convert $30,000 from existing regular 401k to Ruth 401k, I will only pay Federal and State tax for these $30,000 conversion money but don’t need to pay Social Security and medical tax.
Am I understanding correct or not? Thanks
Who cares ease of use im not gonna just not use it bc it’s too hard to fill out a form
Great information however, i believe it to be most helpful if you and others would talk more about widow options. There are so many women who are in desperate need of SS information as a widow getting ready to retire. They need to know how to protect themselves and their money.
How deep would you have to dig to find the costs of your 401k. I have fees listed on my statements would there be more hidden fees other than the funds expense ratio?
When doing an in-plan rollover of the contribution part (i.e. not including any gains) from my after-tax 401k to my Roth 401k, is there a mandatory waiting period once the contribution is made, or can the rollover happen immediately?
In retirement, if I’m drawing down my taxable, tax deferred, and tax-free accounts (in that order) and simultaneously applying the “4% rule”, then, theoretically, I won’t be able to draw down the taxable account to get to the others. Correct?
Another possible reason to keep your 401k…I am retiring and receiving severance payments for a period of time. I still want to do Backdoor Roth contributions during the severance period, therefore I do not want to have funds in an existing IRA during that time.
I never mis an episode of yours and Ari’s YouTube postings