#RetirementPlanning #401kvsIRA #InvestmentStrategies
Hey there! 👋 Are you retired with a 401k or IRA? I recently retired after 40 years and have some funds sitting in my 401k. I’m considering transferring it to an IRA, but not sure if that’s the best move. Here are some factors to consider:
– 401k: Generally offered by employers, limited investment options determined by the company.
– IRA: More flexibility in investment choices, can have a self-directed IRA or opt for managed accounts.
In your situation, where you need to withdraw funds for college tuition and emergencies, an IRA might provide more options and control. However, if you’re not comfortable managing your investments, sticking with a 401k might be simpler.
Do you have any thoughts or experiences to share? Let’s discuss the pros and cons! 🤔💰
If you are mostly fixed income I would roll it to an IRA. Way more options. You can ladder CD’s and invest in any bond fund you would like. If you don’t feel comfortable doing it on your own then maybe look for an advisor or at least make sure your current 401k funds are invested well.
Not to mention the IRa withdrawal process is 10 times easier than a 401k. Speaking from a lot of experience!
IRA in my opinion… Good luck.
The factors I’d typically focus on for this conversation with retirees are ease of access, income distributions, and life event planning.
1) Ease of access – an IRA is typically easier for you to access on your own. If you were with a big company that is using a large 401k custodian (Empower, Schwab, Fidelity etc) it may be a push on ease of access. This is gonna be lean heavily into your preference of website, call center reps, or technology.
2) Income Distributions – in my view the downside of a 401K plan sending income is that they always prorate it equally across your investments. In an IRA, especially an income centered manager, your income could be more strategic. Here’s an example of strategic income. Bond yields had a run earlier this year. When a bond’s yield goes up its price goes down and vice versa. While longer term yields were rising it may have been more strategic to create income from the short-term bond portion of the portfolio. When bond yields fell (and bond prices rose) it may have been more strategic to use the longer-term bond portion of the portfolio. A 401k doesn’t traditionally offer this type of strategic approach.
3) Life Event Planning – The biggie here is always health. You may take 3%-5% out every year, but if something happens to you (thinking an incapacitation event like stroke or coma, not death) could your family access those funds to keep paying bills? I’ve not seen a situation where a 401k plan offers the ability for a spouse to be listed as a power of attorney on the account. I know that IRA’s allow for this. I had a client once that suffered a stroke and was unable to speak. His wife was not listed as an power of attorney on the account. He had a multi-million dollar option position that needed to be addressed and he wasn’t able to give verbal instructions. A loved one as a POA on the account could have fixed the issue with a phone call in two minutes. We always hope that something doesn’t happen to us, but when a few steps of preparation are made in advance they can have an impact on our families stress.
Just some alternative view points. IRA’s tend to have more investment options but at a higher internal cost (expense ratio) compared to 401ks. IRAs tend to be a bit more flexible and user friendly for custom personal needs.
Hope this helps!
First, congratulations on your successful retirement after 40 years of service! That is a remarkable accomplishment in itself. For your current situation and questions, here are some areas to consider:
401k: Usually offered by the employer and has some restrictions on investment options. Management fees may be relatively low, but there is less flexibility.
IRA: Individual Retirement Account that offers more investment options and greater flexibility. You can choose either a traditional IRA or a Roth IRA, depending on whether you want to pay taxes now or on withdrawals.
If you don’t invest in, stocks, funds financial products, you can find an economic professional advisor.
Fixed income funds are usually suitable for a low-risk appetite like yours, but be aware of the effects of inflation and make sure that your portfolio is protected against the risk of inflation over the long term.
Although your health is very good right now, I would suggest that you need to consider long-term care insurance or set up an emergency fund for emergencies