401k 101: I’m changing jobs… Help!

by | May 18, 2022 | Research

When you leave your job, there are many complicated financial decisions you will have to make. And, with so many other priorities, finding time to consider retirement planning and rolling over your 401(k) can be difficult. However, the decisions you make regarding your retirement accounts can set the tone for the rest of your saving years. That’s why it is very important to understand your options.

Should I rollover my 401k?

As you may be aware, when you leave your job you are allowed to take a distribution of your vested balance or roll it over to another retirement account, like an IRA.

It’s probably very tempting to withdraw your 401k funds and go on a shopping spree.  But this is not typically the best course of action. For starters, you could owe tax and an early withdrawal penalty on your distribution. Also, you likely spent years saving those funds for your retirement and cashing out your plan would mean you have to start over on your savings goals. So, in most situations, it makes sense to leave your 401(k) funds earmarked for retirement and in a tax-advantaged account.

Once you have decided to continue saving the funds in your 401(k) for retirement, you have a few options. If your vested balance is over $5000, you could leave your funds in your employer’s plan until you hit retirement age. However, this could limit you to your former employer’s investment options.  With employer sponsored plans, like 401(k)s, your investment options are typically limited to a handful of mutual funds and ETFs which may not provide the lowest cost or diversification you need.

Luckily, another option exists for investors who want to keep their retirement funds in a tax advantaged account and have access to a vast number of investment options. When you roll your funds over into a Traditional IRA, you keep the tax deferral benefits of a 401(k), but you have complete control over your funds, easy access to them now and in retirement, and a plethora of investment options to choose from.

I’ve decided that I should rollover my 401k… What now?

Once you’ve decided to roll over your 401(k) to an IRA, you need to decide who will manage those funds. You could do it yourself but in order to effectively manage your investments on your own, you would need to have a comprehensive knowledge of financial products as well as a good understanding of the markets and current economic conditions. Since markets are always changing, you would also have to spend the time to keep up with those changes. If you have the time and expertise to manage your own funds, there are several different companies with which you can choose to open what is called a self-managed IRA.

However, many people do not have the time to manage their investments on their own. That’s where a wealth manager can help. A wealth manager can help you with everything from rollover paperwork, to choosing investments, to planning for how to reach your retirement goals.

Choosing a Wealth Manager

There are many investment management firms and choosing the right advisor to manage your retirement account can be a difficult choice. After all, you’re choosing the person who can help shape your financial future.

Large investment firms often hire talented salespeople to recommend products to you. That might sound harmless, but what you may not know is these firms are often paid more for certain products. This can create a serious conflict of interest between what is best for you and what is best for the company’s or the advisor’s bottom line.

Fee-Only Investment Advisors (a.k.a. Fee-Only Financial Advisors)

Registered Investment Advisors [RIA]s are different from brokers because they are not paid commissions on sales. Instead of being paid based on product sales, Fee-Only RIAs, like DreamWork Financial Group, earn their money from a percentage of assets under management [AUM]. This eliminates the conflict of interest inherent with commissions and ensures that we make more money when you make more money.

Also, Fee-Only RIAs are held to a fiduciary standard. This means that our advisors are legally obligated to make recommendations that are in your best interest. So, with a Fee-Only RIA like DreamWork, you can rest assured that all our advice is given with your best interest in mind.

What About Fees?

It’s no secret that hidden investment fees can eat away at your returns. These fees could be charged by your investment manager, like account fees and trading fees, or they could come from the investments themselves. Some types of investments, like mutual funds, have upfront sales loads that can reduce the size of your portfolio immediately.

At DreamWork, we believe transparency is key when it comes to your investments. That’s why our fees are clearly advertised on our website and communicated to all our clients. And we build our portfolios from low-cost ETFs and individual stocks. These investments can give you complete diversification and access to specific market sectors and trends, without the hidden fees and loads.

Rollover Your 401(k) With DreamWork Financial Group

With DreamWork, we take the stress out of your 401(k) rollover. Our team can help with the required paperwork, and help you choose investments that put you on the right path to financial success.

Our innovative wealth management program, Investing Gameplan™, makes it possible for all investors, regardless of their account balance, to access custom portfolios and fiduciary advice. At DreamWork, You Don’t Have to be Wealthy to Have Wealth Management®. To learn more, contact us today.