Navigating Post-Retirement 401(k) Options

What to do with your 401(k) when you retire: A guide to making informed decisions

When it comes to managing your retirement savings, one of the most important decisions you’ll make is what to do with your 401(k) plan. For many employees, rolling over their 401(k) into an IRA or another investment vehicle has been a foregone conclusion. However, recent trends suggest that staying put in the plan may be a more viable option for some retirees.

Evaluating the Quality of Your 401(k)

The quality of your 401(k) is the key factor to consider when deciding whether to leave assets in the plan or roll them over. There are three essential metrics to assess: the investment lineup, fees associated with fund options, and administrative costs levied on participants.

When evaluating the investment lineup, you can use Morningstar ratings and data to compare options. However, if your plan includes collective investment trusts (CITs), you may need to do some additional research as CITs are not publicly traded mutual funds.

Considering Your Financial Needs

Your financial situation is another crucial factor in deciding what to do with your 401(k). If you’re a young retiree who needs access to your money before age 59.5, staying put in the plan may be the most practical course of action. This is because investors in 401(k) plans can tap their assets earlier without penalty at age 55, compared to IRA investors.

However, it’s essential to fully assess your portfolio’s long-run sustainability before making any withdrawals, especially if you’re planning to access funds at an early age.

Flexibility and Withdrawal Options

The plan’s withdrawal rules are also worth considering. Some plans may not allow retirees to choose which investments they tap for withdrawals, instead requiring pro rata distributions from all holdings in the account. This lack of flexibility can be a significant disadvantage for retirees who want to maintain their asset allocations.

Additionally, if your plan offers traditional and Roth options, you may not be able to choose which account to withdraw from; distributions may have to come out pro rata from both account types.

Creditor Protections

Finally, legal protections are another reason to consider staying put in an old 401(k). While laws regarding creditor protections for retirement assets vary by state, company retirement plan assets generally have better protections from creditors and lawsuits than IRA assets. These protections will be more significant for those who have had credit or bankruptcy problems or work in a profession where they may be sued.

By carefully evaluating these factors, you can make an informed decision about what to do with your 401(k) when you retire. Whether it’s staying put in the plan or rolling over into another investment vehicle, understanding your options and their implications will help you achieve your retirement goals.