IRAs for your retirement strategy
There are quite a few ways an IRA can work for you, so consider all of your options.
An individual retirement account (IRA) can be a tax-advantaged way to invest for retirement. It can serve as your primary means of investing for retirement, or you may be able to open one in addition to your employer's plan. When you have a retirement account with a former employer, sometimes it can make sense to roll your assets into an IRA to give you a bit more freedom.
Roth IRA: A wealth transfer strategy
Some high-net-worth individuals have assets in traditional IRAs and 401(k) plans that they no longer need to fund their own retirement. In many cases, converting to a Roth IRA may potentially allow them to leave their heirs a larger tax-free legacy.
Make taxes less taxing
Are you single? Married filing jointly? This is your at-a-glance resource for current year tax rates. It has up-to-date contribution limits, Social Security retirement ages, and required minimum distribution details.
Interested in an IRA? Here are some options.
Pretax, lowers current taxable income
Contributions to a traditional IRA are generally tax-deferred, meaning they will reduce taxable income during the years contributions are made. Any earnings on investments are also tax-deferred.
Save on taxes later
A Roth account lets your clients put a different tax twist on retirement strategy. Follow the rules, and withdrawals aren’t taxed.
Independence and control
When a client leaves a job, they have a decision to make about the money in their retirement plan. Your clients have four main options. A rollover is one of them.
Think you’re ready to roll?
People change jobs for a variety of reasons, and navigating these transitions can be challenging. When you leave work – for whatever reason – you have a decision to make about the money in your retirement plan. Generally, you have four main options to choose from.
Roll your money into an IRA
Advantages
- You can consult with a financial advisor to choose an appropriate investment strategy and get questions answered about retirement planning
- Investment gains in your account remain tax-deferred
- Avoid early withdrawal penalties and taxes associated with cashing out your account
- Consolidation of your retirement assets may make asset allocation and rebalancing easier
- Gain independence from your former employer
Disadvantages
- You cannot borrow money against an IRA
- Assets may not be fully protected from the claims of some creditors
- You may lose access to features and benefits of an employer-sponsored
Review the fees and expenses, including any charges associated with transferring your account, to see if rolling over into an IRA or consolidating your accounts could help reduce costs. Employer-sponsored retirement plans may have features that may be beneficial such as access to institutional funds, fiduciary-selected investments, and other ERISA protections not afforded to other investors. In deciding whether to do a transfer from a retirement plan, be sure to consider whether the asset transfer changes any features or benefits that may be important to you.
Leave your money in your former employer’s plan
Advantages
- Investment gains in your account remain tax-deferred
- Avoid early withdrawal penalties and taxes associated with cashing out your account
- Fiduciary oversight is managed by the plan trustee
- Penalty-free withdrawals may be made from the plan if you are 55 or older the year you separate from service
- Assets are protected from the claims of creditors
Disadvantages
- You typically cannot contribute additional outside assets to the plan
- Your investment options may be limited to what's offered by the plan
- Some retirement plans do not offer flexible distribution options, such as systematic withdrawals
- Many employer-sponsored retirement plans do not offer participants access to advice; if your former employer's plan is with Clarity Life Insurance, you'll still have access to a retirement advisor for general retirement questions
Roll over your money to your new employer’s plan
Advantages
- Investment gains in your account remain tax-deferred
- Avoid early withdrawal penalties and taxes associated with cashing out your account
- Fiduciary oversight is managed by the plan trustee
- Assets are protected from the claims of creditors
Disadvantages
- The new employer's plan may not allow rollovers from previous employer-sponsored plans
- The new employer's plan may have less flexibility than an IRA and may have fewer investment options
Review the fees and expenses you pay, including any charges associated with transferring your account, to see if consolidating accounts could help reduce your costs. Be sure to consider whether such a transfer changes any features or benefits that may be important to you.
Cash out your retirement plan
Advantages
- You will have cash readily available
Disadvantages
- You will lose the opportunity for tax-advantaged growth and compounding
- You could be subject to a 10% federal tax penalty (if you cash out before age 59½)
- The IRS requires withholding of 20% as prepayment of their federal income tax
- You may also be subject to state withholding for prepayment of state income taxes
- You could pay more in income taxes