When it comes to retirement planning, the 401(k) is near-universal. The vast majority of company-employed workers funnel a small portion of their paycheck directly into their tax-deferred 401(k) each pay period. As Anthony and Michael Pellegrino of Goldstone Financial Group explain in this installment, having this type of investment vehicle is a crucial part of an effective retirement savings strategy. The pair suggests that employees should take full advantage of their accounts by contributing as much as they can, as early as they can; after all, Michael points out, employees essentially accumulate free money if their work-sponsored plan includes an employer contribution.
What most people don’t have, however, is a strategy to handle their old 401(k) accounts. In his experience, Anthony Pellegrino says, late-career employees will often two, three, or even four old retirement accounts scattered across past employers. Most people tend to have an unfortunate “buy-and-hold” mentality when it comes to old 401(k)s and only notice them when the market dives. To make matters worse, the funds in these accounts are often subject to lots of internal fees, poor expense ratios, and sub-account fees. The better savings solution, Anthony explains, would be to roll the funds from those languishing 401(k)s into a single, more strategically-considered account.
Employees nearing retirement have even more options, Anthony points out. If a person is fifty-nine and a half or older, they have the opportunity to apply an in-service rollover or in-service distribution to old 401(k) accounts. While many people believe that they can’t access their current 401(k) during their employment term, those over the age mentioned above can roll the savings from that account into other investment vehicles and think beyond the limits of their company plan. No taxable event takes place when funds shift from a 401(k) into an IRA – so savers should take advantage!
That said, Michael Pellegrino interjects, people who haven’t reached the fifty-nine-year mark have their own set of imperatives. They need to start planning for retirement early on, contribute as much as they can, and ensure that their investment portfolio is diversified in a way that suits who they are.
To summarize: don’t neglect your old 401(k) plans, start contributing early, take advantage of employer contributions, and implement an in-service rollover when you can! If you need further advice and direction, advisors at Goldstone Financial Group can help you tailor these strategies to suit your unique needs.