Top 4 Retirement Rollover Options: (Advantages & Disadvantages) | Trust Point
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Top 4 Retirement Rollover Options: (Advantages & Disadvantages)

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Updated January 6, 2023

Allyson Krause CRPP™, Managing Director Retirement Plan Services

You have worked hard saving for your retirement. But what happens if you change jobs or retire? There are many considerations in making this decision, but you have options. At Trust Point, we understand this can be an overwhelming time for you. We have highlighted the advantages and disadvantages of each option so that you can feel confident in your financial future. Remember, these descriptions are for general educational purposes and should not be construed as advice or recommendations. This is not tax or legal advice and you may wish to consult with your tax or legal advisors on these issues.

Top 4 Retirement Rollover Options

Option 1: Roll Your Money Into an IRA at Trust Point or Other Provider

Advantages

• Continued tax-deferred growth
• Independence from the former employer
• Greater investment flexibility and control
• Extended tax deferral after original owner’s death
• If 70½, may make direct Charitable IRA Distributions
• Consolidation of IRA and 401(k)s may streamline investment monitoring, distribution strategy, and tax planning
• No required minimum distributions from Roth source funds
• Traditional to Roth conversions allowed

Disadvantages

• Borrowing money against an IRA is prohibited
• Fees and expenses may be higher
• Required minimum distributions (RMDs) are mandatory, even if still employed
• Asset protection from creditors limited by state law
• Penalty-free withdrawals are generally not available until 59 ½
• Five-year waiting period for tax-free withdrawal of Roth IRA earnings

Option 2: Leave Your Money in Former Employer’s Plan at Trust Point or Other Provider

Advantages

• Familiar investment choices
• Continued tax-deferred growth
• Asset protection from creditors
• Fees may be less than an IRA
• Penalty-free withdrawals may be available at age 55
• Call center or online resources may be provided to help answer retirement questions

Disadvantages

• Roth RMDs required at age 72 if not employed
• Tax deferral extension after the original owner’s death may not be allowed
• May not allow Roth conversions
• Minimum balance may be required
• Fees may increase if no longer an employee
• Potential for limited withdrawal options, such as restrictions on periodic distributions or lump sum requirement

senior couple walking on beach after discussing retirement rollover options

Option 3: Roll Your Assets to Your New Employer’s Plan

Advantages

• Continued tax-deferred growth
• Asset protection from creditors
• Fees may be less than an IRA
• Penalty-free withdrawals may be available at age 55
• Consolidates retirement assets into one location
• Possible to delay RMDs if still employed at 72
• May be able to borrow from the rolled-over money
• Call center or online resources may be provided to help answer retirement questions

Disadvantages

• Tax deferral extension after the original owner’s death may not be allowed
• Potential for limited withdrawal options, such as restrictions on periodic distributions or lump sum requirement
• Roth RMDs required at age 72 if not employed
• May not allow Roth conversions
• Fund expenses could be higher or the plan may include other fees
• A waiting period may be required before rollovers allowed

Option 4: Cash Out Your Retirement Savings Plan

Advantages

• Immediate access to cash

Disadvantages

• May have penalties & fees
• Forfeit future tax-deferred growth opportunity
• Funds may not be available for retirement
• Distributions included in current year taxable income may result in taxation at a higher tax bracket

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Allyson Krause CRPP™, Managing Director Retirement Plan Services