Important Options of Your 401(k) Plan

Important Options of Your 401(k) Plan


Upon retirement, many individuals opt to rollover a 401(k) plan balance to an IRA.  This can be a wise decision in many cases but, like everything else, this decision should be evaluated relative to the individual’s specific situation.  There are many considerations, and the following list contains only a few.

Potential Reasons to Rollover One’s 401(k) to an IRA:

•             Roth – If one has dollars inside a Roth 401(k), he/she will be required to withdraw annual Required Minimum Distributions (RMDs) from the account starting at age 70 ½.  A Roth IRA, however, has no such requirement during the account owner’s lifetime.  If the individual needs the withdrawal to support his/her lifestyle, this may not be an issue.  But if the individual doesn’t need cash from the account now, why withdraw dollars that are growing tax-free?

•             Investment Choices – Some 401(k) plans offer many choices of investments whereas others are very restrictive.  One should also consider the costs inside the 401(k) funds vs. the total cost of an IRA (including fund costs, advisors fee and/or commission, account fees, etc.).

•             Beneficiary – A 401(k) plan requires a spouse to be named as primary beneficiary of a participant’s account unless the spouse signs the appropriate waiver with the 401(k) plan administrator.  An IRA has no such requirement.  If a single person plans to remarry soon and wishes to name someone other than the new spouse as primary beneficiary (for example, children from a previous marriage), a rollover to an IRA prior to marriage may be desirable to avoid spousal consent.  In such a situation, it’s also wise to consider a prenuptial agreement and discuss with an attorney.  (Note that courts routinely deny a prenuptial agreement in place of the 401(k) spousal waiver form!)

Potential Reasons to Leave Assets in a 401(k):

•             After-Tax Contributions – The existence of pre-1987 and/or post-1986 after-tax 401(k) contributions may provide valuable income tax planning opportunities in certain circumstances.  This could very well trump the benefits of rolling over to an IRA.

•             Between age 55 and 59 ½ – If one is under age 59 ½ and retired during or after the calendar year in which he/she reached age 55, a rollover to an IRA would cause IRA withdrawals prior to 59 ½ to be taxable along with a 10% IRS penalty unless an exception exists.  However, a special rule may allow 401(k) account withdrawals prior to age 59 ½ without the 10% penalty.  This can be very valuable in some cases.

ID-100137963Retirees have important decisions to make and these decisions should be understood to ensure the desired outcome is attained.  This list should not be viewed as all-inclusive; rather the intent is to educate individuals and to encourage a thorough evaluation prior to action. With the in-depth planning tailored for each specific client, the Payne Wealth Partners team is dedicated to helping you navigate these types of challenging decisions in relation to your personal goals.

Posted: November 26, 2013

Authored by: Terry Prather, CFP®, ChFC®

Direct Phone: 812-602-6307


Share your thoughts by tweeting to @PayneWealth or follow us for more useful information!


The information in this material is only as current as the date indicated, and may be superseded by subsequent market events or for other reasons. While all information prepared in this document is believed to be accurate, any statements of opinion constitute only current opinions of Payne Wealth Partners, Inc., which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. Accordingly, you should not put undue reliance on these statements. The information does not attempt to examine all the facts and circumstances that may be relevant to an individual’s financial needs. Payne Wealth Partners, Inc. is not soliciting any action based on these statements.

Contact Our Offices

Payne Wealth Partners, Inc.
Keystone Financial Consulting
601 N Cross Pointe Blvd
Evansville, IN 47715
Phone: 812-477-6221
Toll Free: 888-477-6221
  • YouTube
  • Follow us on twitter
  • Follow us on facebook
  • Follow us on linkedin
  • GooglePlus

FREE Financial Planning Guides and other exclusive content!

Get instant access to download all our current - and future - informational whitepapers and guides plus join our mailing list to receive the latest Payne Wealth blog posts. 

SUCCESS! Please check your e-mail inbox for your access link and password.