Plymouth, Michigan (PRWEB) December 30, 2013
“If you are thinking about exiting your 401(k) plan, clearly understand the ramifications,” says Titus, owner of AMDG Financial in Plymouth, Michigan. “Get advice from a professional who will make recommendations that are in your best interest. If you’re not certain about the adviser’s qualifications, hold off making a distribution until you find an adviser who will act as a fiduciary on your behalf.”
Without proper advice, you could fall into some unfortunate pitfalls. Titus gives three examples:
1. More expensive and less flexible. After you leave a 401(k) plan, your adviser could lead you into more expensive products that pay higher commissions. Rolling a 401(k) into an IRA annuity product has particular impacts. “You could end up with a significant increase in the internal costs of the underlying investments, a decrease in your flexibility to access funds without liquidation penalties, and limitations on passing the IRA assets to your children or other heirs” Titus warns.
2. Lost loan options before retirement. In certain circumstances, 401(k) funds may be rolled out as early as age 55 while you are still working for your employer. If an adviser suggests moving the money into an IRA, understand that you will lose the ability to take a loan against it as you could with a 401(k) plan. If you need the money before age 59 ½, you would have to withdraw funds from the IRA and could face taxes and penalties.
3. Early distribution penalties after retirement. If you decide to retire early, you may have the option of taking distributions from your 401(k) plan prior to age 59 ½ without incurring a 10 percent early distribution penalty. But if you roll plan assets out to an IRA and take an early distribution, you will incur this penalty. “There’s a way to avoid the penalty, but the calculation is complex, and the monthly distribution allowed is often not enough for most early retirees,” Titus explains. “They end up paying the additional penalty anyway.”
Pitfalls like these point out the importance of obtaining advice from a financial professional who holds himself or herself to a fiduciary standard of care, according to Titus. “Make sure you understand how the adviser is compensated before engaging the individual,” he says. “Then, get a written declaration that the adviser will act as a fiduciary both when giving advice and when recommending a product. Feel confident in your adviser so you won’t have regrets later.”
To find a fiduciary advisor, check Paladin’s Registry (http://www.paladinregistry.com ). Or, go to the website of the National Association of Personal Financial Advisors (http://www.napfa.org ) for a list of fee-only advisors.
AMDG Financial is a fee-only fiduciary registered investment adviser (RIA) in Plymouth Michigan. The firm manages approximately $66 million in assets for clients. AMDG Financial was one of the first 10 firms, globally, to be certified by the Center for Fiduciary Excellence (http://www.cefex.org) as following global best practices for investment adviser fiduciaries.