As CEO of the investment and retirement-focused Gallagher Group, I maintain a website with “plain-speaking” educational materials on all aspects of financial planning. Many clients who I assist participate in employer-led retirement plans under a profit-sharing system, a 401(k), or a 403(b). Others simply contribute to an IRA annuity or private plan. When leaving a company, many are tempted to keep their retirement savings in their old account, as it appears to be simpler and entail less hassle. They feel the company stock is safe, secure, and appreciating at a steady rate.
My advice is to roll the money over into an independent retirement fund. This increases investment flexibility, while allowing retention of the same company stock if you wish. An unfortunate reality is that even Fortune 500 companies go out of business. Diversifying shareholdings ensures that you are never left holding a lifetime supply of worthless Eastern Airlines or Enron Corp. stock. A self-directed IRA rollover is advisable in a number of situations, including if the company is bought out, you quit the company or are fired, or if you retire.
The advantages of the well-structured IRA rollover extend beyond investment flexibility to include penalty-free access to funds before age 59 and a half. This is accomplished through IRS provisions 72T and 72Q, which eliminate the 10% early withdrawal penalty typically tied to 401(k) funds. Other benefits include no public disclosures, increased liquidity, and taxes paid only on money utilized as income. Avoid the temptation to funnel the old company’s funds into the retirement plan of your new company.
Again, the same inflexibilities and risk exposure exist with the new firm’s 401(k). A critical advantage of self-directed IRAs over employer plans is the safety of dependable money management. A reputable independent financial planner will apply retirement strategies that take your individual needs into account. An ideal retirement plan is consistent with personalized goals in tax avoidance, income distribution, estate planning, and insurance.
About the Author:
A well-known radio personality, motivational speaker, and published author, Doc Gallagher has more than two decades of experience in financial advising.