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Retirement Planning

What should I do with my 401(k) plan when I retire?

There are many decisions to make when preparing to retire. Many people will depend on their 401(k) as a source of retirement income.
If you're getting ready to retire and have a 401(k) with your company, you may be thinking about cashing it out. After all, since you'll no longer be an employee that's your only choice, right? Wrong. The fact is, you have options that may be able to spare you from being hit with a big tax bill when you leave work and get ready to retire.

Leave it with your former employer

People often think that since they are no longer an employee, they must immediately move the funds out of their employer sponsored 401(k) plan when they leave. If you're not sure what to with your 401(k) plan on your last day on the job, don't panic. Many employers sponsor plans that will allow you to keep your money in your plan until you're ready to move it out. So unless you've been extremely unhappy with the management of your 401(k) plan over the years, or if your account value is low enough that the former employer has the option to require you to move it out (currently less than $5,000), don't rush yourself. If you have questions or concerns, consult a qualified financial planner.

Roll it over

Another option is to roll over your entire 401(k) directly into an Individual Retirement Account (IRA). However, keep in mind that you need to move over the funds by way of the, "rollover". Within the retirement industry, this term refers to a transfer where your money is moved non-reported between retirement savings accounts of different types. It's a process whereby the money in your 401(k) transfers directly into your new IRA, bypassing you all together. In other words, you never actually take possession of the money in your 401(k), saving that money from being taxed at that time.

For more information on 401(k) plans as well as other retirement plans, visit the Protective Learning Center.



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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

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