Taxes Matter: What You Need to Know

April 11, 2016 | posted in: Blog | by

Taxes Matter: What You Need to Know

What you need to know about IRA rollovers
When you change jobs, it may be tempting to cash out your 401(k) plan. But doing this could derail your retirement savings just when it’s important to keep your money growing tax-deferred. Here are a few items to keep in mind.

It may be better to stay put
If you’ve been happy with your plan and your employer permits it, it may be just fine to keep your 401(k) balance intact where it is. Plus, your 401(k) may offer you access to loans in emergencies- a feature not available in an IRA.

Don’t cash out
Unless you absolutely need the money to live on, most experts advise against cashing out of a 401(k). If you’re under 591h, you will be subject to a 10% penalty and income taxes on the withdrawal. It also can cause you to lose the discipline that comes from investing each pay period.

Roll with it
A new employer’s plan may offer access to investments not offered in your current plan. Tracking expenses is important, as they often create the biggest drag on your investment returns after taxes. Always read the fine print-annual fees and expenses could be higher than those in your current plan.

Broaden your horizons
You may be able to access even more investment options by rolling your 401(k) balance into an IRA. By moving your funds into an IRA brokerage account, for example, you may be able to invest in stocks, bonds, mutual funds and exchange traded funds (ETFs) that are better suited to your investment goals. However, be sure to compare the fees in your 401(k) versus the fees in the proposed IRA before you make the decision to rollover. Remember that consulting with a financial advisor may help you determine your best course of action.

Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

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