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Retirement Financial Planning

When changing jobs or retiring, it’s always prudent to consider all your options as far as employer-sponsored retirement accounts. In rare cases, it can make sense to do nothing, and leave the retirement account with the old employer. There can also be benefits to transferring the account to your new employer’s plan. And sometimes, it just makes sense to move it to an IRA you control. Whatever choice an individual makes, it’s essential to consider the ease of the transfer, tax rules, and probably not losing the benefits of long term tax-deferral or being exposed to penalties.

Option #1: Do Nothing (or leave the money)

  • Cannot make additional contributions

  • The former employer may not allow you to stay in the plan

  • Investment selections are likely limited to the employer plan design

  • Yet another account to coordinate, rebalance and keep track of

  • You may not be aware of changes if the former employer is

  • involved in a merger, is purchased, or goes out of business.

Recommendation: Rebuilding the Retirement Planning Buckets

Imagine the process of trying to find and move the money if your old employer goes out of business. It’s not always easy. But if it happens to be a good company and a good plan, I might consider keeping it.

Option # 2: Rollover to a New Employer Plan

  • You will likely be able to make additional contributions

  • Investment selections are limited to the new plan

  • You will avoid early withdrawal penalties

If you have access to a plan at your new employer, it’s a reasonably sized company, and it appears to have a broad selection of mutual funds to choose from – then it makes a lot of sense to consolidate your old employer’s plan into your new employer’s plan. Costs are always a consideration, but the industry has made a lot of headway in recent years. But, I admit, employer-sponsored plans do still have their issues.

Option # 3: Move it to a Traditional IRA

  • You may still be able to make deductible IRA contributions

  • A limitless selection of investment options

  • You will avoid early withdrawal penalties

  • IRA rules are often more flexible vs employer-sponsored

  • plans

  • Generally easier to withdraw money, coordinate and

  • transfer around

My general suggestion is that if you decide to roll, already have an IRA, or a spouse has an IRA – then just use that IRA account to cover the missing asset classes unavailable in your new employer’s plan. Very few retirement plan (retirement financial Advisor)selections cover every single asset class. There is almost always something missing.

Option # 4: Taking the Lump-Sum

  • The entire balance withdrawn will be considered a distribution

  • You will pay income tax in the withdrawal year

  • Penalties could apply (unless exempted)

Unfortunately, many times young people or sometimes those needing liquidity will change jobs and just take the money out. If you do that pre 59 ½ then you will usually lose about half the money to taxes and penalties. That is not typically what I recommend.

Option # 5: The ‘Cash Balance’ Pension Annuity

  • Not permitted in every employer’s plan

  • Not exactly the same as a traditional pension

  • You will select an annuity income option such as Single Life or Joint and Survivor or other choices

Many Cash Balance Pension Plans offer better rates than what the insurance company off the street will offer. For example, I have seen this countless times with hospitals. Hospitals have the ability, like many large organizations, to negotiate or control directly the terms of the underlying annuity of the pension. Often its a slightly sweeter deal for the plan participant. So it is always worth calculating a cash balance pension plan’s “withdrawal rate” and determine how good of a deal they’re offering.


Many times people have too many accounts. A lot of old 401ks with small balances at companies of which they have no relationship. In these cases, it behooves individuals to consolidate these orphaned accounts into their best available option. That could be a current employer plan or possibly an IRA where you have total control and nearly every possible investment option available. At the end of the day, the goal should be to coordinate these accounts and in turn your asset allocation.