Whatever you do, don’t just cash in the retirement account and take the money
Little Rock, AR (PRWEB) January 30, 2014
Leaving a job and moving to another is a very exciting time for most people, but it can also lead to stress and confusion when it comes to transferring or rolling over a retirement or 401(k) account. Eric Hutchinson, president of Hutchinson Financial, offers advice to those wondering how to handle their retirement accounts when changing jobs in 2014.
“There are occasions when you want to move your retirement account – you might move jobs and want to transfer a 401(k) plan, or transfer an IRA account held at one financial institution to a different financial service provider,” Hutchinson stated. “In either case, you should know that the IRS has very specific rules about what you can and cannot do.”
Hutchinson said there are two ways to move retirement accounts: direct transfer or a rollover.
In the direct transfer of an account, the current financial institution directly transfers the money to the new financial institution, and the consumer does not have access to the money during the process. In a rollover, the financial institution gives the consumer a check in the amount of their retirement account balance, and the consumer is then responsible for delivering the check to the new financial institution.
The choice to make a direct transfer or a rollover will depend on the certain circumstances surrounding the individual’s new job.
“Let’s consider a situation where you’re moving from one job directly to another job. Does your new employer have a retirement plan that will accept rollovers from your previous employers plan? If your new employer has such a plan, then moving your account balance to your new employer’s plan is probably the best option,” Hutchison stated. “If you have some time in-between jobs, or your new employer does not have a retirement plan, a good option is to use an IRA rollover account.”
An IRA rollover account lets individuals park their retirement savings in a safe place where it is protected from taxes and will continue to grow and compound. This type of account is also specifically designed to accept amounts paid out from employer sponsored retirement plans, and in most cases individuals can elect to rollover the money from the IRA to a new plan at a future date.
There is one other option, Hutchinson said, but it is one that consumers should not consider.
“Whatever you do, don’t just cash in the retirement account and take the money. This can be a very expensive mistake,” he said. "When considering the compounding growth that money could have earned if it were left invested, and the penalties if you are under the age of 59 1/2, the true “cost” of cashing out is really much greater than the value of the account on the day the early distribution is taken."
To learn more about how to begin investing and planning for the future, please visit the extensive library of learning tools and resources available at http://www.hutchinsonfinancialinc.com.
About Hutchinson Financial
Hutchinson Financial, founded in 1988, is an Independent Registered Investment Advisory firm based in Little Rock, Arkansas. Hutchinson Financial, Inc. is a fee-only financial planning firm committed to helping all clients reach their individual financial goals. All Hutchinson team members who provide financial planning services and investment advice to clients have professional credentials such as Certified Financial Planner, Chartered Retirement Planning Counselor, Chartered Financial Consultant, Chartered Life Underwriter, or Accredited Investment Fiduciary. To learn more about Hutchinson Financial, Inc., please visit http://www.hutchinsonfinancialinc.com.