Financial PlanningRetirementYour Retirement Savings and Change in Employment

Whether you leave an employer for a wonderful new opportunity or lose a position because of the pandemic, it’s easy to forget about the money you have saved in your retirement plan.

Sometimes, retirement plan savings can stay in a previous employer’s plan. Other times, your money can’t stay in the plan, and you need to take action or your employer may move your money. The circumstances depend on the type of plan the employer offers and the amount of money you have in your account.

What if my money is in a 401(k) plan?

The rules for distributions vary from plan to plan. If your old employer offered a 401(k) plan, then you may have several choices:

  1. Rollover your savings. Plan participants can rollover the money from an old employer’s plan into an Individual Retirement Account (IRA) or a new employer’s plan. There are some good reasons to choose a rollover. For instance:
    • There are no penalty taxes. When you choose to rollover savings directly (meaning you never receive the money) from one retirement plan into an IRA or another 401(k), there are no penalty taxes. All of your money keeps working for you with tax advantages.1
    • It’s easier to keep track. Many people change jobs every few years. Moving retirement savings from previous employers’ plans into one account can simplify things. You know where the money is, you know how it’s invested, and you can easily rebalance investments or make other changes.
    • There’s less administrative work. Even if you choose paperless options, having multiple retirement accounts means tracking more tax documents, remembering more passwords, and updating more accounts when your address or personal information changes. Consolidating your assets can simplify things.

When deciding whether an IRA or a new employer’s plan is the right choice for a rollover, it’s important to compare investment options and fees.

  1. Withdraw your savings. Plan participants can withdraw their retirement savings when they leave an employer or change jobs. The catch is, if you take a withdrawal before age 59½, you may lose as much as half of your savings to income and penalty taxes.2

Once you receive a check, you can rollover your savings into an IRA or a new retirement plan. However, if income taxes have been withheld – employers usually withhold 20 percent for income taxes – you’ll have to make up the difference to complete the rollover and avoid all income and penalty taxes.2

The CARES Act created special rules for withdrawals taken during 2020. If your plan adopted the new rules, you may be able to take a penalty-free distribution before age 59½.3 If you would like to learn more about CARES Act provisions, including whether you qualify for a CARES Act withdrawal, please get in touch.

  1. Do nothing. The reality is financial decisions often inspire inertia. It’s easier to do nothing than to gather the information needed to make a confident decision. As a result, many people leave their retirement savings in former employers’ plans.

That’s okay if you have more than $5,000 in your plan account. However, if you have less than that amount, your employer may have the right to take action and move the money out of the plan:1

        • If you have less than $1,000 in your account, the plan may send you a check with 20 percent withheld for income taxes. The penalties and rollover options are similar to those you have when savings are withdrawn.
        • If you have between $1,000 and $5,000, the employer may automatically rollover your savings into an IRA offered through a provider selected by the plan sponsor.

While it can be tempting to do nothing, when it comes to retirement plan savings, it’s better to take time, consider your options, and make a choice that suits your needs.

What if my money is in a SIMPLE or SEP IRA plan?

Smaller businesses have been particularly vulnerable to pandemic disruption. Often small businesses offer different types of retirement plans, such as Savings Incentive Match Plan for Employees (SIMPLE) and Simplified Employee Pension (SEP) IRA plans. The options are similar to those of 401(k) plans, but there are significant differences. For instance, plan participants can take withdrawals from SIMPLE and SEP IRAs at any time. Withdrawals may be taxed as ordinary income and subject to penalty taxes if the participant is younger than age 59½:4

  1. SIMPLE IRAs have a two-year holding period. SIMPLE plan options are similar to 401(k) plan options. Plan participants, typically, can leave money in the plan, take a withdrawal, or rollover their savings. For withdrawals and rollovers into accounts other than another SIMPLE IRA:5
      • If your money has been in the SIMPLE IRA for two or more years, income taxes may be withheld and a 10 percent penalty tax may be owed, depending on your age.
      • If your money has been in the plan for less than two years, a 25 percent early distribution penalty may be assessed.
  1. SEP IRA plan rules mirror those of traditional IRAs. Plan participants, typically, can:4
      • Rollover savings directly into another type of IRA to avoid penalty taxes and keep tax advantages.
      • Take a withdrawal, although any money withdrawn before age 59½ is subject to income and penalty taxes. After a withdrawal, the participant has 60 days to rollover the money (including any money withheld for income taxes) into a new retirement plan option.
      • Leave the money in the SEP IRA.

The rules governing retirement plans can be complex. Before making any changes to your retirement plan accounts, talk with your tax and financial professionals.

Sources:

1 https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

2 https://www.finra.org/investors/learn-to-invest/types-investments/retirement/401k-investing/401k-rollovers

3 https://www.congress.gov/bill/116th-congress/senate-bill/3548/text#toc-H638004C502804947B4CFB9B4B770C2F2 (Section 2103)

4 https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals

5 https://www.irs.gov/retirement-plans/simple-ira-plan-faqs-distributions

 

Securities offered through “LPL Financial”, Member FINRA/SIPC.

This material was prepared by Carson Coaching. Carson Coaching is not affiliated with Bailey Wealth Services or LPL  Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

This is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax professional.

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As director of First Impressions, I strive to make sure our clients have a comfortable and meaningful experience while providing remarkable customer service at the highest standards. I enjoy going to local Everett events and festivities while spending time with friends and family. I love to read, especially dystopian novels.  I am involved in volunteering opportunities within the community including grocery shopping for homebound people, coffee trailer and first responder appreciation.

Education and Biography

Training

Holly Studied Business and Management at Sno-Isle Business and Management & Everett Community College. She has over 20 years of customer service and administrative experience.

Specialisms

Holly’s focus is to create meaningful connections between our clients and our office. She schedules appointments, answers calls, processes transactions, preparing paperwork to maintain accounts as well as opening new accounts, and transfers.

Albert Ballesteros

With over 25 years of customer service working in the Financial Industry and the State of Washington, Albert is a welcome addition to the service team. He helps with opening new accounts and servicing current accounts. You have probably received appointment reminders from him. He also works with the marketing team in planning monthly letters to clients, planning special events and creating the weekly newsletters.
In his spare time, he volunteers at Northshore Christian Church, having completed two mission trips to the Philippines and has a passion for singing. He enjoys playing and watching most sports but is especially an avid fan of the Everett Silvertips.

Education and Biography

TRAINING

Albert attended Honolulu Community College where he obtained his AA in Liberal Arts.

SPECIALISMS

Albert joined Bailey Wealth Services in 2022. His focus is to provide support to both prospective and existing customers with exceptional customer service. He is very personable and brings professionalism to his role.

Wes Burroughs

One of the things I enjoy most about what I do is educating clients on what is available to them as an investor. Our clients know where they’re at financially and where they are going because we make breaking down the complexities of a constantly changing world a top priority. Outside of work, I love spending time with my wife, Blyn, and playing with our daughter, Sophia. I also enjoy running and hosting game night with friends.

Education and Biography

TRAINING
Wes attended Liberty University where he obtained his BA in Philosophy.

SPECIALISMS
Wes joined Bailey Wealth Services in 2021. His focus is helping families maintain and grow the wealth they already have. Wes enjoys working with our valued clients to facilitate financial relationships by providing solutions, solving problems, and helping them manage their financial lives.

A. Sean Bailey, CFP®

My mission is to assist families as they strive to acquire, accumulate and retain wealth in a tax efficient manner so they may live in retirement with confidence and dignity. When I’m not engaged in professional activities, you can find me on a mountain top with my wife, Kim, and our two children, Eleanor and Oscar.

Education and Biography

TRAINING
Sean received his Bachelor’s Degree in Business Administration, Finance Concentration, from the University of Washington.

SPECIALISMS
Sean Bailey has been in the financial services industry for 30 years. He specializes in developing comprehensive financial, estate and retirement planning strategies for clients nearing and in retirement. Sean is a Registered Principal and Investment Advisor with LPL Financial. He is a CERTIFIED FINANCIAL PLANNER™ Practitioner. Sean is also a member of the Financial Planning Association and Ed Slott’s Elite IRA Advisor Group.

Ed Slott’s Elite IRA Advisor Group is not affiliated with Bailey Wealth Services or LPL Financial.

Sonya Jones

I endeavor to provide excellent service to our clients and organizing processes and procedures to ensure our office runs smoothly. When not working, I enjoy spending time with my fiancé, Erik, and our two boys, Lukas and Archer along with our dog Pixie. I love cooking for them and experimenting with different recipes and techniques, including treats for Pixie. Our favorite family activity is taking road trips, especially to California to visit family and friends.

Education and Biography

TRAINING

 

Sonya received her BA in Art at California State University, Chico and has over 25 years of administrative and customer service experience in the financial services and accounting industries.

 

SPECIALISMS

 

Sonya’s focus is to help clients reach their financial goals by assisting them with their various transactions and paperwork to service and maintain their accounts. This includes opening new accounts and initiating transfers from and to financial institutions. Sonya is constantly looking for new ways to improve our processes to ensure we work efficiently and in a manner that creatives positive experiences for our clients.

Sonya Jones

I endeavor to provide excellent service to our clients and organizing processes and procedures to ensure our office runs smoothly. When not working, I enjoy spending time with my fiancé, Erik, and our two boys, Lukas and Archer along with our dog Pixie. I love cooking for them and experimenting with different recipes and techniques, including treats for Pixie. Our favorite family activity is taking road trips, especially to California to visit family and friends.

Education and Biography

TRAINING
Sonya received her BA in Art at California State University, Chico and has over 25 years of administrative and customer service experience in the financial services and accounting industries.

SPECIALISMS
Sonya’s focus is to help clients reach their financial goals by assisting them with their various transactions and paperwork to service and maintain their accounts. This includes opening new accounts and initiating transfers from and to financial institutions. Sonya is constantly looking for new ways to improve our processes to ensure we work efficiently and in a manner that creatives positive experiences for our clients.