It is more common today for individuals to change jobs several times throughout their careers than to remain with one company for the duration. According to the Bureau of Labor Statistics, the average number of job changes in a lifetime is 12 with many workers spending 5 years or less in each job. This can lead to having retirement plans strewn about and begs the question: Who is in charge of your retirement?
Having multiple company plans can lead to forgotten assets, unintended investment allocations and unintended beneficiaries. Naming your parents as your beneficiary may have been a good idea in your 20s but undoubtedly you and your spouse would not make that same beneficiary designation today. As for your investment allocation, you may not even be aware today of what fund choices you made 1 year ago, let alone 10 years ago. There is a good chance your time horizon has changed which may warrant a revision to your investment strategy.
That being said, deciding whether or where to consolidate old company plans requires the consideration of multiple factors.
Investment choices – IRAs provide a large array of investment choices. Company plans limit you to a finite amount of investment choices which are dependent on the company handling your retirement plan. If you determine that an IRA isn’t the right vehicle in which to consolidate your company plans, consolidating all of your company plans into your current employer plan may or may not make sense based on the investment choices available.
Access to funds – Company retirement plans can be accessed penalty free as early as age 55 with separation from service of that employer. Funds within an IRA cannot be accessed penalty free until age 59 1/2. In both company retirement plans and IRAs a 10% penalty will apply for early distribution unless you meet an exception. Certain exceptions though are only available with an IRA, such as withdrawal for health insurance payments while unemployed, higher education expenses and a first-time home purchase.
Roth IRA contributions – Roth IRAs are great retirement vehicles. They allow you to contribute after-tax funds that grow tax-free and remain tax-free upon distribution. However, there are income limits that restrict some higher income earners from contributing directly to this type of account. For a high-income earner who wants to contribute to a Roth, it may be beneficial to not have an existing IRA balance so one can employ back door Roth contributions.
There are a lot of considerations when it comes to your retirement. A financial planner can assist you in devising an appropriate strategy for your retirement plans, putting you in charge of your retirement.
If you have questions about retirement planning or your overall financial plan, call us today at 412-630-6000. Our experienced financial advisors are here to help.
