With the pandemic in full swing and people hypersensitive to any news related to Covid 19, there are many people who have been laid off, furloughed or just out of work. While it is hard to find anything positive with the business closure and what I fear to be devastating to our economy in the near-term, let me try to find something positive here. Many people who have left their jobs, have left stranded retirement accounts at their ex-employer’s plans. Those plans can, and should be moved to a self-directed IRA that will give the owner of the money much more flexibility, likely reduced fees and a chance to direct that money more suited to their goals and objectives.
Most 401(k) and 403B plans are designed for the accumulation of assets, tax-deferred and with possible employer match to some degree. However, the choice for funds are typically limited and far too often expensive choices with attached administrative fees. Several years ago, I published an article on 401(k) plan likes and dislikes from the plan participant viewpoint. I accessed Fidelity’s database and research that is available to the public or anyone searching online. To summarize this research, revealed that up to 70% of plan participants do not believe that they were given enough help in choosing their allocations. Another group of people felt that their plan choices were not enough and were too expensive.
It is a common complaint that I hear from clients regarding their company’s plan. I try to help them with their allocations, but often find it difficult to find good choices with a very limited selection of mutual funds that often carry a high fee. Some of the smaller plans many times sold by brokers have a family of funds that are really expensive to the client. I’ve seen many 403B plans with no employer match provision and I’ve asked client why they’re participating only to be told that they really didn’t know other than the fact that it was offered. If you are in that position to where your plan offers no match you may want to review, why you are involved in the plan at all.
A very powerful tool that is not advertised to the plan participant in most cases, is a provision in many 401(k) and 403B plans called “in service distribution”, that means, the plan participant may still be involved in the plan and receiving a match however the existing assets in the plan may be able to be transferred to a self-directed IRA. This is a very powerful strategy that allows the plan participant to use any investment vehicle allowed in IRAs to custom build their portfolio to meet their goals, objectives and real purpose for the money. Most plans allow for this distribution after the plan participant has reached the age of 59 ½. However, some plans allow for this distribution at any time. This can be found in the plan documents which all plan participants have access to. I encourage you to seek professional help if you are considering any of the strategies to ensure that you don’t create a taxable event.
If you would like more information about a plan rollover or in-service distribution, please feel free to contact us. We can videoconference; DocuSign and work electronically in this difficult environment
