What should I do with my 401(k) when I retire?

So you’ve been steadily putting money into a 401(k) or similar retirement plan, and now it’s time to retire. What happens to that money now? As long as you’re above the age of 59½ while working—or 55+ and not working in some cases—that money is available for you to withdraw without any penalties. The idea of taking a truckload of cash and running away on your dream vacation might be appealing. However, it’s not a great idea to take out all of your savings at once. Everything you take out now will be taxed as ordinary income, just as it is (or was) on your paycheck.

So, if you’re trying to be smart with your money, what are your options?

Staying put

One option is to keep all of your money in your current 401(k). The money is tax deferred and protected from creditors, and your savings will continue to grow through investment. This could mean extra cash down the line. You can still make withdrawals in this scenario, but you aren’t required to do so until you reach age 70 ½. The biggest issue with this option is that you limit your choices for investment portfolios to whatever your previous employer offered. You may want to diversify your investments or find a fund that has lower fees.

Rolling over

If you’re looking to expand your investment horizons, you have the option of rolling over your 401(k) into an IRA account. IRAs provide flexibility in terms of where you invest your money and may have cheaper fees than your 401(k) plan. However, the increased control you get with an IRA also requires more research and work. Although if you’re interested in squeezing a little more out of your current savings, the extra time investment might be worth it.

It’s important to note that there are rules around contributions to IRA accounts. You can only contribute taxable earnings into your IRA. If you opt to get a traditional IRA over a roth, you cannot contribute past the age of 70 ½.

Annuities, or guaranteed income.

When you’re headed into retirement, it can be scary to think about no longer having a consistent income stream coming in each month. While you may be eligible for monthly payments from Social Security, it may not be as much as you’d like or need to maintain your lifestyle. Luckily, there are options available for providing your own “guaranteed income.” Annuities are a way to do just that. Essentially, you give a company a large sum of money in return for steady payments throughout your lifetime. You can even set up your annuity to guarantee payments for your loved ones if you pass. For peace of mind and stability, buying annuities with earnings from your 401(k) is a popular option for many retirees.  It’s good to know that there are a variety of types of annuities and you don’t necessarily need to tie all of your money into an annuity for it to be effective. Check out the article below to learn more.

Many retirees choose to approach your retirement investments from a few different angles. There’s no need to choose one type of investment account, and a healthy amount of diversity in your portfolio will likely help your income in the long run. As with any financial decision, it pays to research your options in order to determine what’s best for you.

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Read our quick-start guide for help, including which questions you should be asking as you approach retirement.

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Group Created with Sketch.
Not sure where to start?

Read our quick-start guide for help, including which questions you should be asking as you approach retirement.

Read our quick start guide