401(k) Action Steps You Need to Take Now!

401(k) Action Steps You Need to Take Now!

June 12, 2022
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Have you ever switched jobs? Research shows the average American employee switches jobs 12.3 times before retiring.[1]

Job changes mean many Americans have old 401(k) plans that may not be allocated properly to help to prepare them for retirement.

Every time you change jobs, you need to make some choices about what to do with your old 401(k) to keep up with your financial needs. Generally, there are four options with any 401(k):

• You can leave the assets in the old employer’s plan (if the plan permits it)

• You can roll the assets over into your new employer’s plan (if one is available and the plan permits it)

• You can roll the assets over into an Individual Retirement Account (IRA)

• You can take a cash distribution (and deal with the potential tax consequences)

In this special report, we’ll help you avoid common (and expensive) rollover mistakes and show you how you can use your 401(k) rollover as an opportunity to help your retirement preparations. 

1) Roll Over Your 401(k) to Access More Investment Choices (That Benefit YOU)

Every investor is different and volatile markets make customized strategies important to achieving your financial objectives. Workplace retirement plans often offer limited investment options that may not be right for your financial situation. In contrast, IRAs can hold nearly any type of investment, giving you flexibility in your investment strategies. By rolling over your 401k savings into an IRA, you open up a universe of investment options that you can use to build an investment strategy that’s aligned with your long-term goals. 

2) Keep More of What You Earn by Slashing Expenses

401(k)s and other workplace retirement accounts come with administrative fees and expenses that may take a big bite out of your investment gains. IRAs have straightforward fee structures that make it easy to know what you’re exactly paying for and why.

As independent financial professionals, we’re committed to being completely transparent about the costs and fees associated with any investment we recommend. We don’t have sales quotas and aren’t tied to proprietary assets. We work with each of our clients to find investments that are best suited to their needs and long-term goals. 

3) Don’t Be Tempted to Cash Out!

When our clients come to us for guidance on rolling over a 401(k) or other workplace retirement plan, we generally recommend that they do a direct rollover that transfers their assets from their old plan directly to their IRA account. This process has the benefit of being simple and not reportable to the IRS.

However, you also have the option to liquidate your old plan and receive the money directly. While it can be tempting to see your savings as a quick source of cash, cashing out can be a big mistake that may cost you thousands in penalties and taxes as well as prohibit you from years of future growth.

If instead you decide to take a distribution from your old plan or you don’t roll the assets over within the 60-day window, you’ll trigger IRS reporting and potentially saddle yourself with a big tax bill.[2] Taking an early distribution check from your old plan administrator comes with an automatic 20% withholding tax, a potential 10% penalty fee (if you’re under age 59½), and you must report it to the IRS.[3] If you delay moving the assets to your IRA account, you could miss your 60-day window and be forced to pay penalties and taxes on your entire distribution. 

4) Take Control of Your Financial Life 

One of the best arguments in favor of rolling over your old retirement plan is that it can help simplify your life. In our experience, investors tend to lose track of accounts that aren’t right in front of them. Life gets busy, and failing to modify your investment strategies to make sure they keep up with your needs can undermine your long-term financial success. Putting your assets in one place can help ensure that your investment allocations are reviewed regularly and remain consistent with your financial goals. As an ex-employee dependent on the plan, you may not be able to make changes to your investments, preventing you from adjusting your allocations to fit your current circumstances and long-term goals. 

Why Work with a Financial Professional? 

Moving your assets to an IRA can allow you to build a wholly customized financial strategy that puts you and your financial goals first. One benefit of working with a firm comes with the comfort of knowing that a team of professionals continuously monitors your investments, keeping you on track. 

Investments are just one piece of your overall financial picture. As professionals, we consider every aspect of your financial life when building customized strategies for your retirement. To take one example, many investors fail to consider how taxes will affect their investment returns. Depending on your tax bracket, and if you make money annually from taxable interest income, dividends, or capital gains, by not being tax-efficient you could lose upwards of 30% in returns.[5]

We’ll review tax-efficient strategies6 that can help you keep more of your gains and lower your taxes each year.

• Max out your retirement accounts

• Select tax-efficient investments

• Put investments in the proper account types

• Avoid short-term capital gains

• Practice tax-loss harvesting 


If you’re not sure where to start or aren’t confident in your ability to meet your retirement savings goals, you’re not alone. Almost 70% of Americans are worried about how to reach a comfortable retirement in uncertain economic times.[4] At our office, we specialize in offering one- on-one guidance for all of life’s important financial transitions. We can help you understand your personal financial situation and show you exactly what you need to do to pursue your financial goals.

1 “Number of Jobs, Labor Market Experience, and Earnings Growth: Results from a National Longitudinal Survey” Bureau of Labor Statistics. https://www.bls.gov/news. release/pdf/nlsoy.pdf [Accessed Oct 2020] 

2 “Rollovers of Retirement Plan and IRA Distributions” IRS. https://www. irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions [Accessed Jan 12, 2021] 

3 “401(k) Taxes: Rules on Withdrawals, Contributions, Deductions & More” NerdWallet. https:// www.nerdwallet.com/article/ taxes/401k-taxes [Accessed Apr 12, 2021] 

4 “Almost 70% of Americans Worry They Won’t Have Enough to Retire” The Motley Fool. https://www.nerdwallet.com/article/taxes/401k-taxes [Accessed Jun 10, 2020] 

5 “Tax-Efficient Investing: Increase Your Portfolio’s Return Potential” Listen Money Matters. https:// www.listenmoneymatters.com/ tax-efficient-investing/ [Accessed Sept 14, 2020]