by Daniel Kittell | Accounting News, News, Newsletter, Retirement, Retirement Savings
When you retire, you don’t have to move your 401(k) right away, and for many retirees, leaving it where it is could be a smart move. Employers are increasingly adding features that make staying in the plan more appealing. Why? Partly because when employees with large balances leave their money in the plan, it helps lower overall fees for both the company and participants. But before you make a decision, it’s worth understanding your options.
Most Retirees Can Leave Their 401(k) Where It Is
More than half of American workers don’t realize that most plans allow them to leave their 401(k) in place after they stop working.
The key word in that sentence is most. If your balance is under $1,000, your plan may automatically close the account and issue a check. If you don’t deposit that into another qualified retirement account, such as an IRA, it counts as a distribution and may be taxed. You could also incur a 10% early withdrawal penalty.
Additionally, if your balance is under $7,000, your employer may roll it into an IRA for you. Otherwise, your funds can stay put, and you can access it when needed, depending on your plan’s rules.
What’s Changing in 401(k) Plans?
In the past, many plans required retirees to withdraw the full balance or roll it over to an IRA. Now, according to a 2025 Vanguard study, 68% of plans allow retirees to set up installment payments from their accounts (up from 59%), and 43% allow partial, as-needed withdrawals (up from 16%).
These features give retirees more flexibility, but they’re not offered through all plans, so it’s important to check with your plan provider before making a decision to withdraw funds.
Should You Roll Over to an IRA?
Rolling your 401(k) to an IRA may get you a wider range of investment choices, and in some cases, lower fees. But with that flexibility comes responsibility. You’ll need to manage your own money or hire someone to do it for you.
Before moving your money, consider investment options in both accounts, fees (both visible and hidden), your comfort level with managing investments, and whether you anticipate needing regular withdrawals.
Annuities in 401(k)s
Some 401(k) plans now offer annuity options, either directly or through annuity-enhanced target-date funds. These are funds where you choose a target year, usually the year you plan to retire, and at first invest in higher-risk assets, such as stocks. As you get closer to your target year, the fund automatically shifts your money to safer investments, such as bonds.
Annuities offer a steady stream of income for life and peace of mind in retirement planning. On the other hand, they offer less flexibility, often include complex terms, and sometimes have added fees.
There’s No Rush
For many retirees, keeping your 401(k) where it is can be a solid choice, but you don’t need to make a move the day you retire. Take your time. Look at what your current plan offers. Compare it with your IRA options. Consult a financial advisor who can help you come up with a strategy that fits your goals, income needs, and comfort level.
by Jean Miller | Accounting News, News, Newsletter, Retirement, Retirement Savings
If you’re feeling the pressure of playing catch-up with your retirement savings, you’re not alone. In a recent nationwide survey conducted by the National Institute on Retirement Security, 55% of working-age Americans are concerned that financial security in retirement is unattainable. In this article, we’ll explore several strategies to supercharge your retirement nest egg and regain control of your financial future.
Maximize Your Retirement Contributions
If you have access to an employer-sponsored retirement plan like a 401(k), maximizing your contributions is a smart move. In 2024, the annual contribution limit for a 401(k) is $23,000. For those aged 50 or older, an additional catch-up contribution of $7,500 is allowed. Taking full advantage of these limits can significantly boost your retirement savings. Additionally, if your employer offers matching contributions, you can accelerate your savings growth even more.
Automate Your Retirement Contributions
Automating your retirement contributions ensures consistent saving, which can significantly grow your retirement funds over time. Many employers offer automatic contribution increases, typically around 1% annually, which boosts your savings gradually without affecting your daily finances. This approach leverages compounding interest, making it a hassle-free way to secure a more prosperous retirement.
Leverage Work Raises and Bonuses for Retirement
Treat pay raises and bonuses as income earmarked for your future. In other words, if you’re already living within your means, extra money shouldn’t impact your current lifestyle. Instead, allocate these additional funds to your retirement savings and bolster your nest egg while maintaining financial stability.
Diversify Investments
A common avenue of investment is the stock market, and while certain individual stocks can skyrocket and yield significant profits, pinpointing these winners is difficult, even for seasoned investors. Unexpected events can cause a stock’s value to plummet without warning. Instead of risking a substantial portion of your retirement savings on one stock, diversify your investments across various asset classes. Consider options like savings accounts, mutual funds, bonds, retirement plans, and annuities.
Consider Annuity Investments
Annuities are financial products offered by insurance companies designed to provide a steady income stream in retirement. They work by individuals making either a lump-sum payment or a series of payments to the insurance company, which then agrees to make regular payments to the individual. Certain annuities offer a consistent stream of income throughout your lifetime. They help mitigate the risk of retirees outliving their savings.
There are a few reasons to consider annuities. First, they offer a secure harbor for your funds, ensuring consistent returns over the long term. Additionally, growth potential is fueled by accrued interest, so it pays to find the best rates. Finally, the savings are tax-deferred, so tax obligations on the annuity are postponed until you begin withdrawing funds.
