Ways to Increase Your Choices from Your Company Retirement Savings Plans
Increased Investment Choices
Do the following conditions apply to you?
You have a 401K plan with a
You have an after tax deferred savings plan,
You have an employee stock ownership plan with shares eligible for withdrawal;
You are under age 59 1/2 years of age. If older, some of these ideas may still apply.
If the conditions above apply to you, you may be able to increase your investment options without penalty.
Your employee stock ownership plan may show a number of share eligible for withdrawal. If you are under 59 1/2 years of age, you cannot generally withdraw these share to your name without paying taxes and a 10 percent penalty. However, the shares eligible for withdrawal may be able to be rolled over into an IRA and then invested in accordance with your wishes.
Similarly, some of the money in your 401K plan such as the vested company match may also be eligible for rollover.
In some cases, a portion of the money in an after tax deferred savings account can also be rolled over into a qualified IRA. Money contributed to an after tax deferred savings pan after 1986 cannot be withdrawn to you without also withdrawing a proportional portion of the earnings. Since the earnings are tax deferred, early withdrawal can incur a penalty of 10% on the earning and the earnings are also subject to income tax. However, the money earned by the after tax contribution can likely be rolled over, but the after tax contribution amount cannot. You will have to take possession of the after tax contribution amount. However, since tax has already been paid on this money, no tax is due on the amount you originally contributed which has now been returned to you. The tax deferred portion of the account remains tax deferred. No taxes or penalty apply.
When rolling over funds to a qualified IRA, have the funds transferred directly to the IRA account. A check sent to you can get you into a position of having 20 percent withholding taken out. Direct transfer to a qualified IRA account avoids such issues.
Check with you account manager to determine which specific roll over eligibilities may apply to you.
The advantage of having the money in an IRA is that it greatly increase your investment choices including all stocks and mutual funds.
The disadvantage of the IRA is that the larger number of choices requires greater knowledge and skill to be successful. The market has been very kind in the last few years. Investors must remember that companies can lose all of their value, that prices can change suddenly, and that the market as a whole can go down. If transferring existing retirement money into an IRA, consider a good broker at a respectable and established brokerage firm to follow your account. A good broker gets better information than you do, gets more of it than you do, gets it faster than you do, and can get trades executed before you do.
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