You have accumulated a lot of money in your 401(k) at work, but want to take charge of it now as you begin retirement. What strategy could you use for the benefit of you and your spouse?
Purposes for your money include paying for everyday living expense now and later. With retirement just beginning, you have many years to enjoy. So you need to consider preserving the value of that money in addition to withdrawing some to live on.
You preserve its value against inflation by investing at least a portion of you money into growth stocks for the long term. Inflation over the long run has been 3.1%. This will halve the value of money in just over 20 years.
At the same time you want to have another portion of your money not subject to the ups and downs of the equity markets. Your income needs mean you want to rely on investments that produce income first, such as income funds.
Lastly if you want to change your mind later about where to put your money or leave it for a legacy, you need to have control over it too.
Begin by rolling your 401(k) into an IRA. An IRA gives a wide variety of investment choices for your money. Within it you can easily invest a portion in equity-based mutual funds, as well as income-based mutual funds. Earnings in an IRA are tax-deferred, which will allow faster compounding of any earnings than if you held your investment outside tax-deferred investment.
What you withdraw will be taxed at your ordinary income rate, since all your original contributions to your 401(k) at work were tax deductible. You are required to make minimum distributions from your IRA beginning after you reach 70½, but you are planning to take withdrawals anyway.
By making a direct rollover from your 401(k) to your IRA, you will avoid losing a large chunk of it through the ordinary income tax. You would be pushed into a higher bracket too.
Be sure to set the beneficiary designations for the IRA. You can assign your spouse as the beneficiary, and one or all of your children as secondary beneficiaries. This will take care of some estate planning issues for this money.
Be sure to open a new IRA for the rollover so as not to mix your 401(k) money with any other IRA money you may have. This preserves the credit protection that federal law now allows for the full value of your IRA investment when it all comes from a 401(k) plan.
Give us a call or visit www.WealthGuardianGroup.com so we can show you the best way to do the rollover and recommend an IRA family of funds suitable to your needs.
Note: If you are considering an investment in any type of mutual fund, please carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information about any mutual fund investment, always obtain a prospectus and read it carefully before you invest. Funds in a qualified employer plan have ERISA creditor protection, while funds rolled over to an IRA do not.
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