1202 Troy Schenectady Road
Written by Conor Boyd | Founder and Managing Partner of Thoroughbred Advisors
During my 17 years of Financial Advising and Planning I have noticed a common theme for many of the clients I work with. This theme is one of job transition and a trail of old retirement plans marking their professional and business growth. According to the Bureau of Labor Statistics, men and women between the ages of 18-52 hold an average of 12.3 jobs during those years. This trend is expected to continue to accelerate. As defined benefit plans continue to grow in popularity, so do the number of potential plans a client may have.
From my own experience, this trend of multiple retirement plans can often lead to stress and other undesirable outcomes for my clients. They often find it difficult to manage multiple plans. Sometimes they have changed addresses and failed to update their contact information and in certain circumstances have totally forgotten these old plans even exist. Besides family and health, money tends to be a central focus for most people.
In my experience it is procrastination due to a feeling of being overwhelmed.
There usually are multiple factors that lead to these feelings. I would like to say these feelings are unfounded, but unfortunately, if you have not had a great deal of experience with this, it can be very confusing for the layperson regarding what to do.
Many qualified retirement plans like 401(k)’s, and 403(b)’s allow the former employee to remain in the plan. There could be some benefits to this. For example, based on the size of the plan, the ongoing costs of the investment may lower due to institutional share pricing. The potential trade offs for these lower ongoing expenses can be limitations on the available investments and lack of ongoing professional advice. It is important to consider your time, interest, and capabilities regarding managing your own investments. For some this may be an ideal situation. For others, they may value you paying a higher ongoing fee for the professional advice and access to many other investments and strategies.
A second option that is available among some qualified retirement plans is the option to rollover or transfer money from a previous employers plan. It is important to check with your new plans administrator to ensure that this option is available. It is also important to know which type of qualified retirement your old and new plans are. Some types are unable to be combined. Finally you must check the tax status of the money you are looking to transfer. For example, some of that money may be pre-tax and some may be post-tax. Your new plan may not accept both types of money. The potential benefits of doing this may be lower ongoing expenses and ease of managing one account vs. multiple accounts. It is als important to evaluate the quality of your old plan vs. your new plan. This could go either way, the new plan could be better or worse.
A third option is to roll your qualified money into an IRA if it is pre-tax or a Roth IRA if it is post-tax. IRA and Roth IRA’s are simply IRS titles that identify how the money contained within these “shells” will be taxed. If it is a traditional IRA, you will pay taxes upon distribution. If it is a Roth IRA, you have already paid your taxes and as long as you follow the IRS guidelines, you will not pay any taxes in the future on the already taxed principle or growth. When you think IRA or Roth IRA you should think flexibility. You can place many types of investments within these structures. For example, you may purchase individual securities like stocks and bonds. Or maybe you would prefer to purchase no-load mutual funds. Exchange traded funds have become a popular option. Or possibly an annuity, or cd, or even a savings account for short-term needs. The point is there are many different investments that can be held within IRA’s and Roth IRA’s. You can also choose to open this IRA or Roth IRA online and manage the investment yourself. Others may prefer to use a Financial Advisor and receive professional advice. There are many considerations. Taking the time to evaluate your options and make the best choice for yourself is important.
Often this is not recommended because there may be taxes and penalties to doing this before age 59.5. With that being said, it should be considered depending on the individual’s situation. For example, maybe you have student debt or maybe you are a first time home buyer. It is important to consult with a professional but you may be able to access these funds without incurring any penalties before 59.5 if used for a qualifying expense.
In conclusion, there are multiple options to choose from and some people utilize more than one option. Do your due diligence, speak with a professional, and make the choice that is best for you. If you would like to have some help navigating through all the tips I’ve shared, reach out and let’s have a conversation.
Conor Boyd is the Managing Partner at Thoroughbred Advisors, a Financial Planning Firm with offices in Latham and Queensbury NY. With over a decade of experience as a Financial Advisor, and later Managing Director at...