Portfolio Advisory Council, L.L.C.

IRA Rollover Specialists

Retirement & Job Changes

Many people have retirement plans through their employer. Unfortunately, many people leave their retirement assets behind when they change jobs. These retirement assets could be a 401(k) , a pension plan, a 403(b) or a profit sharing plan. We have worked with all of these plans and are happy to answer your questions and help you.

What are your options when you leave a job? In general, there are 4 options:

  1. 1. Take the money and spend it.
  2. 2. Leave the assets with the previous employer.
  3. 3. Rollover the assets to your new employer
  4. 4. Rollover the assets to an IRA

Take the money and spend it. This is the worst option. This can result in penalties and taxes and a significant reduction in your retirement savings. Only in rare circumstances is this a serious option.

Leave the assets with the previous employer. Many people do this, but then lose track of their assets over time. Most company retirement plans have limited investing options. This option also subjects your assets to the specific rules of the company plan, which may not allow as much flexibility as an IRA.

Rollover the assets to your new employer is usually a better option than leaving the assets behind. You will still have limited investing options, and the assets are subject the employers specific rules, but at least with your new employer you are consolidating accounts which allows easier management of your accounts.

Rollover the assets to an IRA is usually is the best option. IRAs can provide the most investing options. IRA rules are more flexible in regards to distributions and beneficiaries.

What if you are leaving your employer to start your own business? This presents new opportunities, challenges and issues too numerous to list here, but we have worked extensively with business owners.

Above is a brief summary of some of the issues concerned with job changes and retirement plans. We have worked with thousands of rollovers and retirement plans. We can help in virtually any situation, so please call us with your questions.

Strategies for Beneficiaries

Upon death, many assets are passed on to heirs via probate using a person’s last will and testament; IRAs have the advantage of passing via beneficiary and thereby avoid the probate process. So the first order of business is naming a suitable beneficiary.

Though the actual process of inheritance of an IRA is simpler, tax issues and family dynamics create other challenges.

Tax issues are generally a high priority issue. Since most retirement accounts are pre-tax funds, all distributions from the account are taxed; what appears to be a large nest egg is significantly reduced after paying taxes. Roth retirement plans are a notable exception to the tax issue and have advantages in an estate over traditional IRAs and retirement plans. Roth accounts are appropriate in some situations, and we can provide guidance on this.

Another issue is RMDs (Required Minimum Distributions). While a non-spouse must start RMDs immediately regardless of age, a spouse can inherit an IRA and avoid RMDs until age 70 ½. Tax planning is important to reduce the tax liabilities.

What about naming children or other individuals as beneficiaries? One problem with naming an individual as beneficiary is that he or she can easily cash out the plan, thus negating the parent’s careful planning for long-term tax-deferred growth. For example: a 23 year old son who is currently in the job market inherits a $200,000 IRA and promptly cashes out the account and pays taxes. The son then buys a $50,000 car and takes an extended vacation. 18 months later, the account is completely gone, with nothing to show for it other than a used car and tax return.

Another example: A 30 year old daughter who is married inherits a $500,000 401(k) and immediately cashes it out. After taxes, the IRA has been reduced to 325,000. A year later the couples divorces and after the settlement decree the daughter’s account has dwindled to less than $100,000. The parents left an asset that if properly managed in a “stretch-out” arrangement could have produced well over a million dollars in income over the daughter’s lifetime. Money that could have purchased a residence, paid for grandchildren’s education, and provided retirement income for their daughter instead will likely be gone prior to her 35th birthday.

For some families, the above is not an issue. Many people with inherited IRAs have the maturity and stability in their lives to handle these situations; however, for parents with concerns, there are planning tools that can help avoid the above negative outcomes.

Questions or concerns on your retirement plan? Please call us to discuss.

Avoid Taxes and Penalties

Be careful when rolling over funds. If not done properly, a person runs the risk of taxes and penalties. We suggest doing a direct trustee to trustee rollover to avoid unwanted tax surprises and penalties.

Understanding retirement planning helps people pass more wealth to their loved ones, maximize continued tax-deferred growth, protect and grow IRA savings for their families. We can help you take advantage of the rules governing IRAs and qualified plans so that each beneficiary can grow and protect his or her inheritance.