Jun 14, 2019
Should you do a 401(k) rollover to an IRA? What happens to your
retirement accounts when you hit the magical age of 70 ½? How and
when you withdraw money from your accounts makes an enormous
difference to the overall success of your financial plan. On
today’s podcast, Joel will walk us through some of the most common
questions revolving around some of retirement’s most ubiquitous
Full show notes here: https://johnsonbrunetti.com/what-you-need-to-know-about-ira-401k-withdrawals-rollovers
What You'll Learn:
0:51 – Contributing To A 401(k) Is The Easy
- Things get complicated when you withdraw money from IRAs,
401(k)s, TSPs, etc…
- The way you withdraw money can have a profound impact on how
much money you keep, live on, pay the IRS or pass on to the people
- Without a strategy, you can trigger higher taxes.
2:43 – Why Is The Age 70 ½ An Important
- The IRS forces you to start taking money out of your retirement
- This is an important age because it needs to be planned
- The reality is that you lose some control and flexibility of
your retirement money.
4:27 – What Happens If You Don’t WANT To Withdraw The
- Joel shares a story about a meeting with a client’s son coming
to the realization of how big a chunk taxes were going to take out
of his income.
- Retirement accounts like IRAs and 401(k)s give you tax breaks
throughout life. That’s why eventually the IRS wants those dollars
6:32 – The Required Distributions Are Not Required On
- It only applies to qualified retirement accounts (403bs,
401(k)s, etc…) and IRAs.
- This does not apply to Roth IRAs or the Roth portion of a
401(k). Life insurance plans that are designed for tax-free future
income are also exempt from the mandatory withdrawals. Certain
annuities are also a part of this exception.
8:17 – What Happens If You Have Multiple Accounts At 70
- The IRS doesn’t care which accounts you take your money out of.
They just tell you the total amount you need to withdraw.
9:53 – Can You Lessen The Tax Burden The Withdrawals
- Not really. Unless you do it ahead of time with some advanced
tax planning strategies. But if you wait until you’re taking the
withdrawals, your options are a bit more limited.
- The key is to be proactive before you hit that magical
11:34 – Rolling A 401(k) Into An IRA
- There are certain reasons you might want to stay in a
- But most people find several benefits to rollover to an IRA.
They gain access to more investment options, get better control
over the account and can also get more effective professional
- Some people will see a drop in fees going from a 401(k) to an
IRA (or vice versa), but that doesn’t tell the whole story in every
- As with most things, it’s a pros vs. cons kind of
14:27 – Common Rollover Reason: High Cost
- A lot of large companies have gotten better at reducing their
fees due to multiple lawsuits. Sometimes smaller companies will
have higher fees.
15:14 – Common Rollover Reason: The Financial Junk
- Many people accumulate multiple 401(k)s as they bounce between
- This can lead to more complicated planning because of so many
various accounts of differing amounts. That’s why many find it
beneficial to roll into an IRA where it’s simpler to track.
16:44 – Common Rollover Reason: Need More Bond
- A lot of 401(k)s lack in their access to bond funds. For some
people, this is a big reason to do a rollover.
17:34 – Common Rollover Reason: More Withdrawal
- Some 401(k)s limit how many trades or withdrawals you can
18:24 – Warning: Don’t Implement A Rollover Without A
- It won’t make sense in every situation.
- Understand all of the pros & cons and how a rollover fits
into your overall situation before pulling the trigger on an action