Secure a financially stable and enjoyable retirement.
When approaching the much-anticipated retirement phase, focus can shift from how to plan your newfound leisure time to strategizing how to best manage your retirement savings. The excitement of ending a long career can quickly be dampened by the complexities of managing retirement funds effectively. Here are several tips on how you can handle your 401(k) distributions to avoid common pitfalls and hefty tax implications.
Immediate 401(k) Distributions
Many retirees face mandatory distributions once they leave their place of employment. In these scenarios, rolling your 401(k) funds into an Individual Retirement Account (IRA) might be your best bet to sidestep early withdrawal penalties and manage your tax liability more favorably.
Evaluating Lump-Sum Distributions
Opting for a lump-sum distribution might seem appealing for its simplicity but know that it could push you into a higher tax bracket for the year, possibly increasing the amount of taxes you owe. Always consider how this one-time influx of money could impact your overall finances.
Leaving Funds in Your 401(k)
Some companies offer the option to leave your retirement savings in the 401(k) plan even after you part ways. This might be advantageous if the plan features excellent investment choices and low fees, but remember, you’ll still be subjected to any changes the company might make to the plan.
Rolling Over to an IRA
Transferring your 401(k) funds into an IRA is often hailed for its flexibility. An IRA not only allows your assets to continue growing tax-deferred but also offers broader investment choices and more control over distributions. This is particularly beneficial if you have various qualified plans from different employment periods, as consolidating them into one IRA can streamline your financial management and oversight.
Making the Decision
Your decision on whether to take a distribution or leave your funds in a 401(k), or possibly roll them into an IRA, should hinge on your specific financial situation. This includes considering what tax bracket you expect to fall into the year you retire.
Retirement planning may not be straightforward, but it’s essential. If you haven’t begun discussing your retirement strategies, now is the time to start. Consider meeting with a First Entertainment financial advisor today to explore your options and prepare for a financially secure retirement.
Michelle Lee, First Entertainment Credit Union Financial Advisor
323.845.4434
mlee@firstent.org
