As you near retirement, your nest egg is even more sensitive to market volatility and potential loss of your hard earned savings. In fact, the US Federal Reserve released figures showing that the median US household net worth dropped 39% between 2007 and 2010, reducing 18 years of prior gains. If you were already retired and taking income from your nest egg, the devastation was even worse if you were exposed to the ever-changing stock-market.
Many 401(k)s and other retirement plans offer fund options that can provide safety, but they do so at the expense of growth potential.
More investors are now familiar with the idea of Fixed Index Annuities that can protect your principal from any market loss, but still participate in market gains. Few employee sponsored plans offer annuities as a fund alternative, and if they do, it is very limited with the rate option guarantees.
There is a choice on most 401(k) and other retirement plans that allow in service withdrawals as a rollover while still continuing to participate in the plan. The rollover is penalty and tax free if you roll it to a personal annuity IRA.
According to a recent study done by consulting firm Aon Hewitt, 90 percent of defined contribution plans including 401(k)s allow in-service withdrawals. An in-service withdrawal allows active employees – typically age 59 and a half and older – to initiate a direct rollover of funds from a qualified plan into an independent retirement account (IRA) without incurring any taxes or penalties. Although the tax codes generally allow such rollovers, some plans can impose more restrictive codes.
The tax code permits the following types of funds to be rolled over to an IRA:
- Employer matching and profit sharing contributions
- Employee after-tax contributions (non-Roth)
- Employee pre-tax and Roth contributions after age 59 and a half.
It is also important to note that some companies allow employees to rollover their retirement plans before reaching age 59 and a half as well.
To learn more from this educator, click here (Laura Johnson).
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