Question: “I’m planning on retiring at the end of this year. I have about $108,000 in my 401(k), which I will have to move when I retire. How do I get information on where and how to move this money? Is it silly to hire a financial adviser just to help me with this one task, or should I hire them and then also have them look into other areas of my finances as I enter retirement?”
Answer: You actually may not have to move your 401(k), though you may want to get better investment options. And pros say that while you likely don’t need a financial adviser to help you move a 401(k), you may want one to create a one-time financial plan that you can follow in retirement. You can use this free tool to get matched to fiduciary advisers from our ad partner SmartAsset, as well as sites like CFP Board and NAPFA.
But first, to figure out your 401(k) rules, the most convenient place to start would be to consult your company’s HR department. “They will either have someone on staff that is well versed in your 401(k) plan specifics or be able to put you in contact with a representative from your 401(k) plan administrator. You can also review your plan’s Summary Plan Description which should be available online through your 401(k)’s online portal,” says Derek Jones, chartered financial analyst at Scratch Capital.
There are a few common distribution options in 401(k) plans. “I would recommend consulting with a financial professional to discuss the implications, pros and cons of each option,” says Jones. “You can leave your money in the 401(k), where it remains invested and you can then set up periodic cash distributions from the account. You can do a tax-free rollover from your 401(k) account into an individual retirement account. If your 401(k) contains pretax money, you would roll that portion into a Traditional IRA and if your 401(k) contains Roth money, you would roll that portion into a Roth IRA. Some plans allow you to convert your investment balance into an annuity that pays you a predetermined monthly amount for the rest of your life.”
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Don’t drive yourself crazy looking for outside help. “Many 401(k) custodians have retail arms that can help you with the process of moving assets out of your 401(k) and into an appropriate account. Coupled with some knowledge from a few searches, you’ll have all you need to be informed and be able to spot any red flags if they appear to be pushing high-fee solutions or something else,” says certified financial planner Tim Witham at Balanced Life Planning.
For his part, Jamie Ebersole at Ebersole Financial says there’s usually no requirement that you have to move the money from the plan once you retire. “There may be benefits to keeping the funds in the plan, such as enhanced creditor protection and potentially low fees and access to ongoing planning services. The first stop should be with your HR department to review what your options are. They can also help you decide if making a rollover to an IRA makes sense,” says Ebersole.
Indeed, setting up a rollover IRA account takes no more than a few minutes on most platforms. “Always be sure to have the transfer made directly from the current account to the new account in a trustee to trustee transaction. If the funds are first distributed to you by check, taxes may be withheld and you will never get those funds back,” says Ebersole.
Make sure you do your due diligence on where you’re moving the money before you make the move. “This is years of work being transferred to a new home so you want to be sure the new place is flexible, low cost and tax efficient. For most people approaching retirement, a direct rollover to an IRA is the cleanest path as it preserves the tax-deferred status of the funds, eliminates the early withdrawal penalties and gives you access to thousands of investment choices instead of a 401(k) menu with a dozen or two options,” says certified financial planner Eric Croak at Croak Capital.
Do you need an adviser?
While the move of your 401(k) is easy, the setup, picking the right institution, asset mix and income plan are where people make costly mistakes. “Bringing in an adviser for just the rollover feels like overkill, but if you’re transitioning to retirement, you’re in the ideal stage for a more comprehensive financial health check,” says Croak. “Accumulation versus distribution are two entirely different games, so the right planner can show you how to take tax-efficient income, structure withdrawals to minimize RMD pain down the road and calibrate risk so your $108,000 lasts a lifetime. Think of it like taking your car to the mechanic before a cross-country road trip. You don’t do it every year, but you do it before a big adventure.”
Brad Clark, investment adviser representative at Solomon Financial, says he strongly encourages you to reach out to an independent financial adviser to discuss your situation. “This ensures that you get an unbiased perspective. A qualified independent adviser can often assist you in a number of different areas related to retirement planning such as tax strategies, Social Security planning, required minimum distributions and other complex retirement matters,” says Clark. An adviser can also tell you, if in fact, that $108,000, plus whatever benefits you might get, will be enough to retire on, or whether you’re better off saving more.
To find a pro, Clark recommends the Dave Ramsey SmartVestor Pro program. “It’s critically important to confirm the adviser’s legal standard of care. A fiduciary is legally obligated to put your best interests first at all times, whereas a non-fiduciary operating under a suitability standard only has to recommend suitable investments which may still involve selling proprietary products or funds that pay them a higher commission,” says Clark. You can also use this free tool to get matched to fiduciary advisers from our ad partner SmartAsset.
Beyond the 401(k), an adviser may be able to add significant value in areas of retirement planning, tax planning and investment management. “Retirement is full of strange and ever-changing rules that most people are unaware of. Having an adviser step through those decisions could add significant value through careful planning,” says Witham.
If you prefer to DIY this, some advisers offer one-time consults or hourly meetings just for transitions like this. “This is an affordable way to validate your plan without committing to ongoing management. I’ve had single sessions before that have found moves that would pay for the advice tenfold,” says Croak.
To better understand the cost of different fee structures, CFPs who offer one-time plans typically charge between $1,500 and $7,500 per plan while hourly planners charge between $200 and $500 per hour, depending on location and complexity of the case. With just $108,000, you probably won’t meet the threshold to work with an adviser who works under the AUM model, but you also probably don’t need the ongoing support they offer.
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